The naira in circulation comprises the currency outside the banking system and the vault cash of banks.
The total money supply in the country however fell slightly for the first time since July 2022 to N55.5 trillion. It was N55.6 trillion in April 2023.
According to the data available, naira in circulation rose from N2.3 trillion to N2.5 trillion the highest recorded in 2023, and since the supreme court reversed a CBN policy on new naira notes.
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Naira in circulation in Nigeria has been on the rise since the supreme court ruled against the new naira notes policy introduced by the apex bank in late 2022.
The policy had been largely criticized by most Nigerians due to its poor implementation and the spate of scarcity it created across several cities in the country.
The central bank stated that the policy was introduced to curb excess money supply, especially physical cash which it claimed contributed to inflation.
The spate of rise in currency in circulation suggests the country is gradually going back to trends recorded in 2022 when the currency in circulation grew month and month climaxing to about N3.3 trillion in May 2022.
Between February when the currency in circulation was around N982 billion and May this year, currency in circulation has risen by 50 per cent, the fastest we have seen in recent years.
In fact, between the 29 per cent month-on-month drop in February, currency in circulation rose 71 per cent to N1.6 trillion in March and 41 per cent from March to N2.3 trillion in April 2023.
Naira outside banks has also risen in a similar trend growing by 71 per cent and 44 per cent month on month in March and April 2023 respectively.
The sharp rise in currency in circulation, according to nairametrics may also be due to the effect of the central bank policy as more Nigerians may have been dissuaded from saving in banks.
The recent surge in currency in circulation in Nigeria, accompanied by the rise in currency outside banks, has significant implications for inflation management and exchange rate depreciation.
The increase in physical cash flow, following the Supreme Court ruling against the new naira notes policy, challenges the effectiveness of the measures implemented by the Central Bank of Nigeria (CBN) to control inflation.
As the availability of physical cash grows, there is a possibility of increased demand for foreign currencies, potentially impacting the exchange rate.
Policymakers must closely monitor these developments to ensure effective inflation management and maintain exchange rate stability, fostering a healthy economic environment for Nigeria.
Lower interest rates on customer deposits also affect the increase in money supply as Nigerians prefer to keep their cash than invest in fixed-income securities.
There is also fear that this could compound Nigeria’s exchange rate situation. (Source: nairametrics)
