Amid the naira redesign policy implemented by the Central Bank of Nigeria (CBN), the International Monetary Fund (IMF) has projected that the amount of currency outside the banking system will reach N4.26 trillion in 2023. In its report titled “Nigeria: 2022 Article IV Consultation—Press Release; Staff Report; and Statement by the Executive Director for Nigeria,” the IMF noted that there would be an increase in the volume of currency outside banks, despite the CBN’s aggressive efforts to bring more cash into the banking system and reduce public cash holdings. The report indicated that the currency outside the banking system is expected to rise from N2.94 trillion in 2021 to N7.66 trillion by 2027. Projections for the coming years include N3.54 trillion in 2022, N5.1 trillion in 2024, N6.08 trillion in 2025, and N6.99 trillion in 2027.
However, current data reveals that the amount of currency outside banks is significantly lower than the IMF’s projection for 2023. As of January 2023, the currency outside banks plummeted to N788.92 billion, according to the latest figures from the Money and Credit Statistics on the CBN’s website. This represents a staggering decrease of 69.26 percent from December 2022, when the figure stood at N2.57 trillion, indicating that the CBN successfully retrieved N1.78 trillion from circulation. The January 2023 value is the lowest recorded in 13 years, dating back to May 2009, when it was N764.39 billion. Additionally, the total currency in circulation fell to N1.39 trillion in January, down from N3.01 trillion in December, reflecting a decline of N1.62 trillion or 53.82 percent.
The country has been grappling with a cash shortage since the CBN announced plans in October to redesign the N200, N500, and N1,000 notes, with new notes issued on December 15 and a deadline for the swap set for January 31. However, due to the ensuing crisis, President Major Gen. Muhammadu Buhari ordered the CBN on February 16 to reintroduce the old N200 note into circulation until April 10. CBN Governor Godwin Emefiele stated that one of the objectives of the naira redesign policy was to retrieve currency outside bank vaults, which he estimated at N2.7 trillion. He emphasized that such a large amount outside the banking system complicates the effectiveness of monetary policy initiatives on the economy. Emefiele also highlighted that the policy aims to control currency circulation, combat counterfeit currency, and reduce ransom payments to kidnappers and terrorists. He remarked, “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.”
Meanwhile, the IMF has urged the CBN to exercise caution regarding the naira redesign policy due to the disruptions to trade and payments caused by the shortage of new notes, which has resulted in significant hardship for Nigerians.
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