Despite many moves by the Central Bank of Nigeria (CBN) to mop up liquidity in the Nigerian economy last year, the nation’s money supply still rose to an all-time high of N52.14 trillion.

Data from the apex bank, shows that Nigeria’s money supply gained a massive N8.32 trillion in the year under review after jumping from N43.82 trillion in 2021, representing an increase of 19 per cent year-on-year.

Nigeria recorded a record-level inflation rate in 2022 triggered by the Russia-Ukraine war and the global energy crisis. In November 2022, Nigeria’s inflation rate climbed to a 17-year high of 21.47 per cent moderating albeit slightly to 21.34 per cent in the following month.

In a bid to tame the rising rate of inflation in the country, which had increased for eleven successive months, the CBN’s monetary policy committee (MPC) raised the benchmark interest rate (MPR) by a collective 500 basis points to 16.5 per cent in November 2022. The committee however followed with an additional 100 basis points increase to 17.5 per cent in January 2023.

The tightening stance of the CBN was aimed at reducing the money supply in the country and currency outside the vaults of the banks, which is believed to be fuelling the inflationary pressure. Unfortunately, the increase in money supply has remained unabated, consistently trending upward since August 2022.

The money supply, which is a function of the level of liquidity in the economy comprises net foreign assets and net domestic assets.

According to the data, net foreign assets stood at N4.25 trillion as of December 2022, an N4.56 trillion decline when compared to N8.81 trillion recorded as of the corresponding period of 2021.

On the other hand, net domestic assets rose by a whopping N12.88 trillion in the review year to stand at N47.89 trillion from N35 trillion the previous year. This implies that Nigeria’s money supply growth is driven by the surge in net domestic assets.

This is largely driven by the increase in domestic credit, which stood at N66.46 trillion as of the end of the year.

Further breakdown showed that credit to the government increased by the huge sum of N11.33 trillion to stand at N24.66 trillion, while credit to the private sector increased by N6.6 trillion to stand at N41.8 trillion in the same period.

The total currency in circulation in the Nigerian economy stood at N3.01 trillion at the end of the year, an N313.1 billion reduction compared to N3.33 trillion recorded in the previous year.

Currency outside the vaults of the banks also stood at N2.57 trillion, representing 85.2 per cent of the total currency in circulation.

Meanwhile, the recent announcement by the apex bank governor, Godwin Emefiele indicated that the currency outside the banks has dropped significantly to N900 billion, thanks to the naira redesign programme and cash swap policy.

Recall that the CBN said it had recovered N1.9 trillion worth of the currency previously held outside the banking system as of January 2023.

“Ladies and gentlemen, available data at the Central Bank of Nigeria has shown that in 2015, currency in circulation was only N1.4 trillion.”

“As of October 2022, currency in circulation had risen to N3.23 trillion; out of which only N500 billion was within the banking industry and N2.7 trillion held permanently in people’s homes.”

“So far and since the commencement of this program, we have collected about N1.9 trillion; leaving us with about N900 billion (N500 billion + N1.9 billion),” Emefiele said. (nairametrics)