Naira in circulation hits N3.87trn, raising economic concerns

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The Central Bank of Nigeria (CBN) reported that the value of Naira in circulation climbed to N3.87 trillion at the end of March 2024. This represents a steady rise from N3.65 trillion in January and N3.69 trillion in February. While the increase suggests more cash flowing in the economy, analysts warn it could also point towards potential inflationary pressures.

According to the latest money and credit statistics on the website of the Central Bank of Nigeria, the currency in circulation was N3.87tn, higher than N3.69tn in February and N3.65tn in January.

However, currency outside banks have also increased progressively during the first quarter, growing from N3.28tn in January to N3.41tn and N3.63tn in February and March, respectively.

The data revealed that over 90 per cent of currency in circulation is held outside of the banking system, indicating Nigerians are holding more cash.

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Several factors might be contributing to this rise in circulating currency. One explanation could be an increase in economic activity, leading to a higher demand for cash for everyday transactions. Another possibility is that due to recent restrictions placed on mobile payment operators like Opay and Palmpay, Nigerians might be turning towards cash for transactions they previously conducted digitally.

However, economists also caution that a significant rise in physical currency can be a sign of growing inflation. When more naira are chasing a limited supply of goods and services, prices tend to rise. This can disproportionately affect low-income earners who see their purchasing power diminish.

The CBN will need to monitor the situation closely. While a certain level of cash circulation is essential for a healthy economy, excessively high levels can fuel inflation. The CBN might consider implementing measures to mop up excess liquidity, such as raising interest rates or selling government bonds.

It’s important to note that this is just a single data point, and a more complete picture would require analyzing it alongside other economic indicators like inflation rates and economic growth figures. Nevertheless, the rise in currency circulation is a noteworthy trend that warrants close attention from policymakers and economic analysts in the coming months.