The amount of currency outside the banking system in Nigeria decreased to N3.66 trillion in July 2024, marking the second decline this year.
This represents a reduction of 3.32% (N130 billion) from the previous month’s figure of N3.79 trillion, highlighting the Central Bank of Nigeria’s (CBN) ongoing efforts aimed at tightening liquidity and encouraging deposits into the formal banking sector.
Nairametrics observed that the decrease is larger than the 0.62% (N20 billion) fall recorded between March and April when it dropped from N3.63 trillion to N3.61 trillion.
Increase in circulating currency
Despite the decrease in currency outside the banks, the currency in circulation saw a marginal increase from N4.05 trillion in June to N4.05 trillion in July, a growth of just 0.12%.
The minimal increase suggests that the economy might be stabilizing in terms of cash usage, potentially due to increased digital transaction adoption or regulatory measures aimed at controlling cash flow.
Nairametrics also observed that despite a slight increase in total currency circulation to N4.05 trillion, the amount outside banks dropped to 90.39% (N3.66 trillion), from 93.59% of currency in circulation recorded the previous month in June 2024.
This decline marks a significant moment, suggesting that efforts to bring more money into the formal banking system may be starting to take effect.
What you should know
June 2024 marked a historic milestone as the currency in circulation surpassed N4 trillion for the first time, reaching N4.05 trillion.
The currency outside banks also saw an increase, reaching a new high of N3.79 trillion. The data for June highlights the continued expansion in liquidity and the preference for holding cash outside banks.
However, the data for July shows that while currency in circulation has reached a new high, currency outside banks has dropped from its June peak.
This drop suggests a potential shift in behaviour, where more of the circulating money is being deposited into banks rather than held as cash.
More money within the banking system allows for better control by the Central Bank, which can use this to implement effective monetary policies, manage inflation, and support economic stability.
The decrease in currency outside banks might indicate that more people are being brought into the formal banking sector, improving financial inclusion.
By reducing the amount of cash held outside banks, the economy might become more stable, with less risk of cash-based disruptions and more accurate tracking of economic activities.
The drop in currency outside the banking system corresponds with a drop in inflation as Nigeria’s headline inflation rate decreased to 33.40% in July 2024, down from 34.19% in June 2024.
This marks the first decline in the headline inflation rate since December 2022, when it last dropped to 21.34%, according to the National Bureau of Statistics (NBS) CPI report for July 2024.
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