By Charles Ebi
Despite the Central Bank of Nigeria ,CBN, monetary policy tightening, Nigeria’s currency in circulation surged to an all-time high of N3.97 trillion in May 2024, resulting in a N314.6 billion increase year-to-date ,YtD, according to statistics obtained from the CBN website.
This represents an increase of N42.15 billion or 1.07% Month-on-Month ,MoM, from N3.92 trillion reported in April 2024, and N1.44 trillion or 56.93% Year-on-Year ,YoY, from N2.53 trillion reported May 2023.
Currency in circulation refers to the amount of cash–in the form of paper notes or coins–within a country that is physically used to conduct transactions between consumers and businesses.
In January 2024, at the height of the currency redesign policy of CBN, currency in circulation stood at N3.65 trillion and by February 2024, it increased to N3.69 trillion.
According to CBN, currency in circulation stood at N3.87 trillion in March 2024, about 4.76% MoM increase from N3.69 trillion in February 2024.
It increased to the N3.9 trillion in April 2024 at N3.92 trillion, and before rising to N3.97 trillion in May 2024.
The CBN had revealed that that currency in circulation closed December 2023 at N3.65 trillion from N1.39 trillion reported in January 2023.
The Central Bank had announced the designing of the naira for N200, N500, and N1000 denominations, which began circulation on December 2022 and is expected to be in use simultaneously as the old note till January 2023.
The decision according to the apex bank was made in light of growing cases of naira counterfeiting and currency hoarding. “In recent times, however, currency management has faced several daunting challenges that have continued to grow in scale and sophistication with attendant and unintended consequences for the integrity of both the CBN and the country.
“In recent years, the CBN has recorded significantly higher rates of counterfeiting especially at the higher denominations of N500 and N1,000 banknotes. Although global best practice is for central banks to redesign, produce and circulate new local legal tender every 5–8 years, the Naira has not been redesigned in the last 20 years”, the CBN said.
Analysts had expressed that the current pattern in currency in circulation is a reflection of growing lack of confidence in the banking system, stressing that an increased preference for cash transactions, possibly driven by economic uncertainty or other socio-economic factors.
When Olayemi Cardoso resumed office as CBN governor in September 2023, currency in circulation was at N2.76 trillion.
While there has been a significant surge in the currency in circulation, the country’s economic growth has been tepid, with Nigeria’s economic growth rate for 2024 projected to be around 2.9% and 3.1%, having one of the slowest growth rates in West Africa.
Inflation has been a significant concern, with the headline inflation rate jumping 33.69% in April 2024 from 29.9% reported January 2024, according to the National Bureau of Statistics ,NBS.
The Monetary Policy Committee ,MPC, of CBN has increased Monetary Policy Rate to a historic high of 26.25% to combat inflation and foster economic stability.
The announcement, made by CBN Governor, highlights the central bank’s proactive approach towards monetary tightening amidst challenging economic conditions.
This unprecedented move has not only set the Monetary Policy Rate ,MPR, at its highest level to date but also reflects the CBN’s determined effort to address the persistent economic pressures.
Meanwhile, analysts believe the currency in circulation presupposes that there has been more spending in the economy especially by the government because of the hardship in the land.
“So, the government has to spend a lot. And when there is much more money in circulation and the government is spending so as to probably boost the people’s income, the resultant effect is inflation and that is why in every Economic Policy there is something called trade-offs, you cannot have much more in the circulation and at the same time have low inflation”, said Vice – President, Highcap Securities Limited, Mr. David Adnori.
He explained, “When you have more money in circulation, it means that there has been increase in government spending, and that means that there will be inflation which means that cost of goods will go higher, as much money will keep chasing fewer goods and services”.
According to him, the consequent effect is that, it will reduce people purchasing power and their earning power will also reduce. “Because inflation reduces people earning power and that is where are at the moment in Nigeria”, he said.
