The amount of currency held outside Nigeria’s banking system surged by 66.2% in September 2024, reaching N4.02 trillion, up from N2.42 trillion in September 2023. This represents an increase of N1.60 trillion over the past year, according to data from the Central Bank of Nigeria (CBN). Month-on-month, currency outside banks rose by 3.8%, or N147.9 billion, from N3.87 trillion in August 2024, highlighting a growing trend among the public to retain cash outside formal banking channels.

The CBN data further revealed that in September 2024, approximately 93.1% of currency in circulation was held outside banks, a rise from 87.5% recorded in the same month last year. This shift may be linked to factors such as limited trust in banking services, high inflation, and the extensive reliance on cash in Nigeria’s informal economy.

Analysts warn that such a high volume of currency outside the banking sector could impact banks’ liquidity, challenge the CBN’s ability to channel funds into productive investments, and ultimately hinder economic growth. The CBN report also noted that total currency in circulation increased by 56.1% year-on-year, reaching N4.31 trillion in September 2024, up from N2.76 trillion in September 2023. This indicates that cash held outside banks has grown at a faster rate than the overall currency in circulation.

In response, the CBN recently announced plans to address cash shortages by sanctioning banks that fail to keep their automated teller machines (ATMs) well-stocked. The central bank also disclosed plans to inject an additional N1.4 trillion into circulation over the next three months to ensure sufficient cash flow within the banking system. This move aims to alleviate cash scarcity issues for customers and ensure ATMs and bank branches have adequate cash supplies.

The CBN’s strategy is part of a broader effort to stabilize cash flow as Nigeria’s money supply also saw a significant rise. The PUNCH reported that Nigeria’s money supply (M3) grew by 62.8% year-on-year in September 2024, reaching N108.95 trillion, up from N66.94 trillion in September 2023. Month-on-month, the money supply rose by 1.6% from N107.19 trillion in August 2024, despite the CBN’s efforts to tighten liquidity to manage inflation.

As the central bank moves forward with measures to secure cash availability within the banking sector, stakeholders will be closely watching the impact of these dynamics on the Nigerian economy.