Driven by CBN Intervention in Various Sectors, Inflation Rate, Currency in Circulation Hits N2.84trn

Darasimi Adebisi

Following the Central Bank of Nigeria (CBN) intervention across various sectors of the nation’s economy, currency in circulation reached an all-time high of N2.84 trillion as at September 2021.

Currency in circulation is physical cash outside the vaults of the CBN, i.e all legal tender currency in the hands of the general public and in the vaults of the Deposit Money Banks (DMBs).

Analysts attributed increase in currency in circulation to inflation rate, stressing that the CBN intervention in various sectors also contributed to physical notes in the country.

Speaking with THISDAY, The President, Bank Customers Association of Nigeria (BCAN), Dr Uju Ogubunka attributed hike in currency in circulation to weak infrastructures, maintaining that most Nigerians in rural areas are yet to adopt cashless means of transactions.

Ogubunka said: “Most Nigerians are used to cash and it will take a while for full adoption of cashless Nigeria. Hopefully, in the next 10 years, we might start having full impact of the cashless policy of the CBN across the country. For now, many Nigerians still depend on the cash to transact businesses.”

He said further that the eNaira project of the CBN may have a positively impact on currency in circulation..

“Infrastructures may be a major drawback on the planned eNaira of the CBN. Think of access to Power, stable network, among others. Somehow, it will work, but will take some time to have the full impact stakeholders are expecting, ”he said.

On his part, analyst at PAC Holdings, Mr. Wole Adeyey hinted that double-digit inflation rate is responsible for hike in currency in circulation for the month of September.

He also expressed that most banks in Nigeria showed a significant rise in ATM withdrawals and this could be linked to increase in currency in circulation

According to him: “Many things may have contributed N2.84trillion in currency in circulation for September 2021. The inflation rate at 16.63per cent for the month of September is still high. The prices of goods and services have increased significantly in the market; hence people need to spend more money.

“Also, the persistent depreciation of Naira in the foreign exchange market shows that people need more Naira to exchange for one US dollar. Also, data from most banks in Nigeria showed significant rise in ATM withdrawals and this could be linked to increase in currency in circulation. In addition, the increase in domestic credit may have contributed to higher currency in circulation.”

Commenting, Vice President, Highcap securities limited, Mr. David Adnori attributed hike in currency in circulation to money created by the CBN to finance federal government budget and intervention by the apex bank in some key sectors.

In his words: “In my own view, the money creation by CBN through lending to banks as to assist them finance some key projects in the economy might increase physical currency.”

In addition, analyst and finance expert, Mr Rotimi Fakeyejo hinted that excess liquidity in the economy in the “Ber” month has leveraged growth in currency in circulation, stressing that Nigerians are finding it difficult to embrace the cash policy of the CBN.

According to him: “The market currently is awash with excess liquidity and it is due to season of the year. CBN interventions in the foreign exchange and key sectors of the nation’s economy also are factors contributing to hike in currency in circulation in September.”

He explained further that Nigeria is still more of a cash economy, facing infrastructure challenges.

“Someone can blame infrastructure deficit to CBN’s good intention of making Nigeria a cashless society. The infrastructure that will make the cashless policy work is missing compared to what we have in Kenya,” he explained.

The central bank in 2002 introduced the cashless policy to eliminate the amount of physical cash (coins and notes) circulating in the economy, and encouraging more electronic-based transactions (payments for goods, services, transfers, among others.)

The CBN had reported N2.83trillion currency in circulation in January but it increased to N2.78trillion in February. It, however, moved to N2.81trillion in March but close April at N2.80trillion and closed May at N2.79trillion.

It dropped further to N2.74trillion in June and appreciated by 2.58per cent to N2.81trillion in July and closed August at N2.78trillion in August 2021.

THISDAY had early this year gathered that currency in circulation hits all-time high at N2.91 trillion in December 2020.

The data by CBN in December, however, revealed that currency in circulation gained 29.3 per cent and 9.4 per cent Year-on-Year and Month-on-Month growth respectively.

The CBN in a report had explained that, “The heightened uncertain outlook due to the lockdown encouraged more cash to be held by the public. This was evident from the increase in currency in circulation, compared with the level in the preceding month.”

In his response, Chief Executive Officer, BIC Consultancy Services, Mr. Boniface Chizea said: “Ideally any economy with a model is able to estimate the optimal level of liquidity that will be adequate for its operations going by projected Gross Domestic Product. Liquidity levels in Nigeria should be under the purview of the Central Bank. But surprisingly it would appear that what is being observed now is due to the activities of third-party elements.

“With the attempts to jump-start the economy as a result of the pandemic lots of liquidity was injected under the Quantitative Easing protocols. And this has partly accounted for the inflationary spiral which according to the Bureau of Statistics has maintained an improving trend for the last six months currently standing at 16.63per cent.

He added that: “The free-falling rate of foreign exchange has encouraged a lot of speculative activities with piles of Naira held at many silos in the country. Economic agents are taking flights to dollar, which is a relatively stable currency. There are also lots of illegal funds making the rounds; as compatriots gear up for 2023 elections as horse trading assumes greater dimension.
“A high corruption environment is also prone to excessive liquidity as illegal monies change hands as shady deals are concluded. All these factors account for the witnessed excess liquidity and the Central Bank has its work cut out for it as it must rise to the challenge of the maintenance of price stability. And we expect the situation to worsen as we approach elections 2023.”