The International Monetary Fund predicted that in 2023, the amount of money outside of the banking sector will reach N4.26 trillion due to the Central Bank of Nigeria’s strategy of redesigning the naira.
The IMF stated in a report titled “Nigeria: 2022 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Nigeria” that despite the CBN’s aggressive efforts to push more currency into the banking system and out of the hands of the general public, there would be an increase in the volume of currency outside banks.
According to the research, there would be N7.66 trillion outside the banking system by 2027, up from N2.94 trillion in 2021. The amount of money outside of banks was also predicted to be N3.54 trillion in 2022, N5.1 trillion in 2024, and N6.08 trillion in 2025 and N6.99tn in 2027.
The present level of money outside banks is far less than the IMF’s forecast of N4.26 trillion by 2023. The most recent information available from the Money and Credit Statistics on the CBN website shows that the amount of money held outside of banks plummeted to N788.92bn in January 2023.
The figures that are now accessible show that between January 2023 and December 2022, when it was N2.57 trillion, there was a reduction of 69.26%. As a result, the CBN was able to recover N1.78 trillion from the money kept outside of banks. Since May 2009, when the value was N764.39 billion, the most recent value of the currency outside of banks for January was at its lowest level in 13 years.
The data also put currency in circulation at N1.39tn in January from N3.01tn in December, showing a difference of N1.62tn or 53.82 per cent decline. The country has been battling with shortage cash since the central bank in October announced plans to redesign N200, N500 and N1,000, issuing the new notes on December 15 and fixed January 31 as deadline for the swap of the new notes.
But due to the crisis that trailed the exercise, the President, Major Gen. Mahammadu Buhari, on February 16, ordered the apex bank to reissue the old N200 note into circulation till April 10.
Among other things, the CBN Governor, Godwin Emefiele, had said one of the objectives of the naira design policy was to mop up currency outside the bank vaults, which he put at N2.7tn. He said with such a huge amount outside the banking system, it would be difficult for monetary policy initiatives to impact the economy.
According to the CBN governor, this was targeted at controlling currency in circulation, curbing counterfeit currency and ransom payments to kidnappers and terrorists. He noted, “Indeed, the integrity of a local legal tender, the efficiency of its supply and its efficacy in the conduct of monetary policy are some of the hallmarks of a great central bank.
“In recent times, however, currency management has faced several daunting challenges that have continued to grow in scale and sophistication with attendant and unintended consequences for the integrity of both the CBN and the country.”
Meanwhile, the IMF urged the CBN to be cautious of the naira design policy because of the disruption to trade and payments being caused by a shortage of new notes, which has led to hardship for Nigerians.
