Driven by the intervention of the CBN in various sectors, the rate of inflation, the currency in circulation reached 2.84 trn
Following the intervention of the Central Bank of Nigeria (CBN) in various sectors of the country’s economy, the currency in circulation reached a record high of 2.84 trillion naira in September 2021.
The currency in circulation is cash outside the coffers of the CBN, that is to say any currency that is legal tender in the hands of the general public and in the coffers of the Depository Banks (DMB).
Analysts attributed the increase in currency in circulation to the rate of inflation, pointing out that CBN intervention in various sectors has also contributed to physical banknotes in the country.
Speaking to THISDAY, Bank Customers Association of Nigeria (BCAN) President Dr Uju Ogubunka attributed the rise in currency in circulation to poor infrastructure, saying most Nigerians in rural areas do not have not yet adopted the means of cashless transactions.
Ogubunka said: “Most Nigerians are used to cash and it will take some time to fully embrace cashless Nigeria. Hopefully, over the next 10 years we may start to have the full impact of CBN’s cashless policy across the country. For now, many Nigerians still depend on money to do business. “
He added that the CBN’s eNaira project could have a positive impact on the currency in circulation.
“Infrastructure can be a major drawback to the planned eNaira of CBN. Think about access to Power, a stable network, among others. Either way, it will work, but it will take some time to have the full impact that stakeholders expect, ”he said.
For his part, analyst at PAC Holdings, Mr. Wole Adeyey suggested that the double-digit inflation rate is responsible for the increase in the currency in circulation for the month of September.
He also expressed that most banks in Nigeria have shown a significant increase in ATM withdrawals and this could be related to the increase in currency in circulation.
According to him: “A lot could have contributed to 2.84 trillion naira in circulation for September 2021. The inflation rate of 16.63% for the month of September is still high. The prices of goods and services have increased. significantly in the market; therefore, people have to spend more money.
“In addition, the persistent depreciation of the Naira in the forex market shows that people need more Naira to exchange for a US dollar. Additionally, data from most banks in Nigeria showed a significant increase in ATM withdrawals, which could be related to the increase in currency in circulation. In addition, the increase in domestic credit may have contributed to the increase in the circulation of money. “
Commenting, Vice President, Highcap Securities Limited, Mr. David Adnori attributed the rise in currency in circulation to money created by the CBN to fund the federal government budget and the intervention of the umbrella bank in certain key sectors .
In his words: “In my opinion, the creation of money by the CBN through loans to banks to help them finance certain key projects in the economy could increase physical currency. “
In addition, analyst and financial expert Mr. Rotimi Fakeyejo hinted that the excess liquidity in the economy during the month “Ber” favored the growth of the currency in circulation, pointing out that Nigerians have struggling to adopt the CBN treasury policy.
According to him: “The market is currently inundated with excess liquidity and this is due to the season of the year. CBN interventions in foreign exchange and key sectors of the national economy are also factors contributing to the rise in currency in circulation in September.
He further explained that Nigeria is even more of a cash economy, facing infrastructure challenges.
“Someone can blame the infrastructure deficit on CBN’s good intention of making Nigeria a cashless society. The infrastructure that will make the cashless policy work is lacking compared to what we have in Kenya, ”he explained.
The central bank introduced the cashless policy in 2002 to eliminate the amount of physical money (coins and banknotes) circulating in the economy and further encourage electronic transactions (payments for goods, services, transfers, among others.)
The CBN reported 2,83 billion naira in circulation in January, but rose to 2,78 billion naira in February. However, it rose to 2.8 trillion naira in March, but closed in April at 2.8 trillion naira and closed in May at 2.7 trillion naira.
It fell further to N2.74 trillion in June and appreciated 2.58% to N2.81 trillion in July and closed August at N2.780 trillion in August 2021.
THISDAY had at the beginning of this year gathered that the currency in circulation reached an all-time high of 2.91 trillion naira in December 2020.
CBN data in December, however, revealed that the currency in circulation rose 29.3% and 9.4% year-on-year and month-on-month respectively.
The CBN in a report explained that “the increased uncertain outlook due to the lockdown has encouraged the public to hold more money. This is evident from the increase in the currency in circulation, compared to the level of the previous month. “
In his response, the Managing Director of 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 based on the domestic product. projected gross. Liquidity levels in Nigeria should be the responsibility of the Central Bank. But surprisingly, it would appear that what is currently being observed is due to the activities of third-party elements.
“With the attempts to revive the economy in the wake of the pandemic, a lot of liquidity has been injected under the quantitative easing protocols. And that partly explains the inflationary spiral which, according to the Bureau of Statistics, has maintained an improving trend over the past six months, currently standing at 16.63%.
He added that: “The plummeting exchange rate has encouraged a lot of speculative activity with piles of naira being held in many elevators across the country. Economic agents take flights to the dollar, which is a relatively stable currency. There are also a lot of illegal funds circulating; as compatriots prepare for the 2023 elections as the horse trade takes on a greater dimension.
“A high corruption environment is also prone to excessive liquidity, as illegal funds change hands as shady deals are made. All these factors explain the excess liquidity observed and the Central Bank has its work cut out for it because it must meet the challenge of maintaining price stability. And we expect the situation to worsen as the 2023 election approaches. ”