The currency in circulation (CIC) has increased by 7.4% in the first five months of 2023, the Central Bank of Nigeria (CBN) has revealed.
In a data released on Tuesday, the CBN said the currency in circulation, which comprises funds within and outside the banking system, increased by N200 billion.
In January this year, the currency in circulation was put at N2.3 trillion, but four months after, the currency within and outside the banks rose to N2.5 trillion in May.
Backstory to the increase in currency in circulation
Recall that the currency in circulation was N982.09 billion at the end of February in 2023, down from N3.29 trillion at the end of October 2022.
The currency in circulation fell between October last year and February this year, as the period was when the CBN tried to implement the unsuccessful naira redesign policy.
Ripples Nigeria had reported that the CBN implemented the botched policy to reduce the currency in circulation, however, the decision backfired, as it caused a shortage of naira.
Nigerians were forced to buy naira at the black market in order to have banknotes to pay for goods and services, as the commercial banks had limited redesigned naira notes to give to customers.
CBN accused the banks of sabotaging the policy, while the banks claimed that the financial regulator didn’t provide sufficient redesigned banknotes.
The naira scarcity led to a Supreme Court case filed by several states against the Federal Government, in a bid to use the court to force FG to compel CBN to release the old naira notes mopped from circulation.
After the court ordered that the old and new naira notes remain legal on March 3, voiding CBN’s decision to phase out the old banknotes, the currency in circulation began to increase.
Recall that the old naira notes were phased out from February 10, but became scarce before then. After the March 3 ruling, the CBN delayed release of the old notes till the third week of March.
New development in currency in circulation and impact
From N982.09 billion at the end of February this year, the currency in circulation has increased to N2.5 trillion in May, Ripples Nigeria gathered.
This indicates the CBN has released N1.51 trillion between March and May, while currency outside the bank increased slightly from N2 trillion in April, to N2.1 trillion last month.
Although, the total money supply in Nigeria dropped to N55.5 trillion in May, below the N55.6 trillion reported the month before. This was the first time the money supply will fall since July 2022.
The increase in currency in circulation and funds outside banks means there will be more money in the economy. This will positively affect demands for goods and services, although a hike in prices or soaring inflation could limit spending.
Also, currency in circulation increasing could cause more naira notes to chase a few dollars, thereby, impacting the exchange rate and further depreciating the value of the naira, while increasing the rate of foreign exchange.
In addition, the inability to withdraw their money during the naira scarcity could also have discouraged people from keeping their money in banks, hence, an increase in currency outside banks’ vaults.
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