By Chinwendu Obienyi

The Central Bank of Nigeria (CBN) has revealed that cash outside commercial banks now consists of over 80 per cent of the currency in circulation.

Its Deputy Governor, Financial System Stability, Aisha Ahmad, revealed this at the weekend during her appearance before the House of Representatives to defend CBN’s new cash withdrawal limits policy.

This is coming after the apex bank’s governor, Godwin Emefiele, had in November revealed that 85 per cent of the currency in circulation in Nigeria was outside the banking system. 

Speaking at the 57th Annual Bankers Dinner organised by the Chartered Institute of Bankers of Nigeria (CIBN) in Lagos, Emefiele said, “Analysis of the key challenges primarily indicated a significant hoarding of bank notes as over 85 per cent of currency in circulation were held outside the banking system.

This is even as currency in circulation more than doubled from N1.46 trillion in December 2015 to N3.23 trillion in September 2022, a worrisome trend that must be curbed”. He said.

According to him, the redesigned notes will help to rein in inflation as well as prevent hoarding of the country’s Naira notes.

However, Ahmad in her presentation, said currency management was a key function of the apex bank as enshrined in Section 2(b) of the CBN Act, 2007, noting that the integrity of the currency and efficient supply of banknotes were indicators of a performing central bank, especially in predominantly cash-based economies such as Nigeria.

Highlighting the various challenges facing currency management, which had affected the ability of the CBN to efficiently carry out its mandate of issuing legal tenders, Ahmad said the  challenges have continued to grow in scale, with the attendant consequences on the bank’s policy effectiveness, if left unaddressed. 

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According to her, these challenges include wholesale hoarding of naira banknotes by members of the public.

“An observation supported by statistics shows that cash outside banks consists of over 80 per cent of the currency in circulation; worsening shortage of fit banknotes in circulation. This portends negative public perception of the bank and increasing threat to financial system stability.

“High and increasing cost borne by the bank: A review of the cost of currency management from 2017 to 2021 indicated an average increase of over N10 billion per annum and over 90 per cent of currency management costs are attributed to banknote production. This affects the CBN and other participants in Nigeria’s currency management sector (banknote production, storage processing, distribution activities and banknote destruction).” She said.

The CBN Deputy Governor also noted that the high risk of counterfeiting evidenced by reports from security agencies on the rise of counterfeit-related incidents in some states, including the Federal Capital Territory, was another challenge.

This, she added, had adverse implications for businesses and the economy at large.

Reacting to the development, the Chief Executive Officer, Center for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, argued that the cash outside the banks is not an abnormal phenomenon, adding that the total money in the economy is N50 trillion and the cash component of money is only N2.8 trillion.

Yusuf said,“That is just about 5 per cent and so all of this noise about too much money outside the banking system is a non-issue for those who understand data around money supply.

Cash is not meant to be inside the banks but outside and one thing one uses to measure cash dominance in an economy is to look at cash-to-GDP and cash-to-GDP in Nigeria is at 1.8 per cent as compared to others which is as high as 10 per cent and so when you look at the cash GDP here in Nigeria, it is not too much”.