Non-bank currency surges as Nr 1.6 trillion leave vaults on shore in one year

The latest data from the Central Bank of Nigeria (CBN) reveals a significant year-on-year (YoY) increase in the amount of currency outside the banking system, highlighting a shift in public behavior towards holding cash.

According to CBN monetary and credit statistics, non-bank currency grew by 66.2% in September 2024 to N4.02 trillion compared to N2.42 trillion in September 2023.

This increase represents a substantial difference of N1.60 trillion that left bank vaults in one year.

On a month-on-month (month-on-month) basis, non-bank foreign exchange rose by 3.8% in September 2024 from N3.87 trillion in August, an increase of N147.9 billion.

The data suggest an increasing trend in the public’s preference to hold cash outside the formal banking system, a move that may affect the liquidity available to banks and influence monetary policy dynamics.

93.1% of currency in circulation is outside banks

The data further indicates that a significant portion of currency in circulation is held outside the banking system.

In September 2024, about 93.1% of total currency in circulation was outside banks, up from 87.5% in September 2023.
This trend could be related to limited trust in banking services, inflationary pressures or structural reliance on cash in a largely informal economy.
With a large percentage of currency outside the banking sector, the economy may face challenges in channeling funds into productive channels, potentially limiting growth.
The report shows a parallel increase in total currency in circulation, which includes money both inside and outside the banking system.
In September 2024, currency in circulation grew by 56.1% from last year to N4.31 trillion, up from N2.76 trillion in September 2023, reflecting an increase of N1.55 trillion.
This also means that the amount of currency taken out of the banking sector is greater than the amount of currency put into circulation during the one-year period.
Compared to the previous month, the currency in circulation registered an increase of 4.0% monthly in September 2024, adding 166.2 billion lei compared to August’s figure of 4.14 trillion lei.

What you should know

The rise of non-bank currency could signal a lack of confidence in formal banking structures, especially as the Nigerian economy faces inflation and rising costs of living.

The preference for holding cash may also stem from limited access to banking facilities in rural areas, where digital banking infrastructure remains sparse.
Such a change could hinder financial inclusion efforts, making it difficult for the CBN to achieve a cashless economy.
The rise of non-bank currency may also complicate the CBN’s monetary policy operations, as large cash reserves outside formal channels could reduce the liquidity available to commercial banks, limiting their ability to lend to businesses and individuals.
At the beginning of September, The CBN has announced that it will sanction banks that will not distribute cash through their ATMs as part of efforts to ensure sufficient cash in circulation.
It also revealed that it will release an additional N1.4 trillion into circulation in the next three months to improve cash flow within the banking system.
This move was aimed at ensuring sufficient availability of cash in ATMs and bank branches, addressing the challenges of cash crunch faced by many customers.

Nairametrics earlier reported that Nigeria’s money supply (M3) grew by 62.8% year-on-year (YoY) in September 2024despite the tightening stance of the Monetary Policy Committee (MPC) aimed at reducing excess liquidity to control inflation.

According to data from the Central Bank of Nigeria (CBN), M3 grew to N108.95 trillion in September 2024 compared to N66.94 trillion in the same month last year.

On a month-on-month (MoM) basis, money supply grew by 1.6% from N107.19 trillion in August 2024.