Cash scarcity persists despite CBN’s N2.4trn currency issuance in six months
…Learn from past mistakes to safeguard Nigeria’s economy — Expert tells CBN
Amidst the persistent cash scarcity plaguing Nigeria, the Central Bank of Nigeria (CBN) has reported a significant increase in currency issuance within the first half of 2023.
Despite the Central Bank’s efforts, many Nigerians, especially those involved in small businesses and festive holidaymakers, continue to face challenges due to the lack of available cash for transactions.
In a recent update, the CBN revealed that the total currency issued by June 2023 soared to N2.400 trillion, a stark increase from the N557.61 billion recorded during the same period in 2022.
This marks an increase of over 100 percent, highlighting the Central Bank’s response to the ongoing currency demand. In early November 2023, the CBN assured the public of sufficient currency stock within the banking system, advising against panic withdrawals.
Despite these assurances, the scarcity of cash remains a significant concern.The CBN’s half-year report for 2023, available on its website, indicates that the issued currency reached N2.405 trillion from January to June 2023.
This figure represents a 331.0 percent and 236.37 percent increase compared to the first and second halves of 2022, respectively.
Interestingly, the eNaira, Nigeria’s digital currency, constituted less than half a percent of the total currency issued, with physical banknotes making up the overwhelming majority, over 99.0 percent.
The report also mentioned that the CBN’s Forensic Currency Laboratory had received approval to begin in-house adjudication and examination of counterfeit notes. This initiative aims to utilise advanced technology to improve the quality and integrity of the Nigerian currency.
A financial analyst based in Lagos commented on the situation, noting that factors such as government spending, economic growth, inflation, and shifts in monetary policy could all contribute to the increased amount of currency in circulation.
In 2020, the CBN spent N58.61 billion on printing banknotes, a decrease from the N75.52 billion expenditure in 2019. As the Central Bank continues to navigate the complexities of currency management, the impact of these measures on easing the cash scarcity remains to be seen.
Broad money (M3), which is the widest measure of an economy’s money supply, grew significantly above its provisional benchmark, driven largely by the increase in net foreign assets (NFA) following the adoption of a market-determined exchange rate in June 2023.
On June 14, 2023, the CBN collapsed all foreign exchange market segments into the Nigerian Autonomous Foreign Exchange Market (NAFEM), formerly the Investors’ and Exporters’ (I&E) forex window.
NFA grew significantly by 59.6 percent to N11.11 trillion against the contraction of 25.6 and 34.7 percent recorded at the end of December 2022 and June 2022, respectively.
Notably, the NFA maintained a downward trajectory until May 2023 before it started rising in June 2023, due to the revaluation effect of the assets, following the Bank’s decision to switch to a market-determined exchange rate.
This was reflected in the 51.8 percent growth in claims on non-residents, propelled by the increase in the value of the official reserve assets and other foreign assets of the Bank and the increase in foreign currency deposits of Other Depository Corporations (ODCs).
Net domestic assets (NDA) also grew by 18.9 percent to N53.81 trillion in June 2023, relative to 28.9 percent and 21.9 percent at the end of December 2022 and June 2022, respectively. The increase in NDA was driven by the 31.2 percent growth in domestic claims which was prompted by the 39.8 and 26.6 percent rise in net claims on the central government and claims on other sectors, respectively.
The composition of the monetary authority’s claims on the central government changed significantly in line with the securitisation of the Ways and Means Advances, which took effect in June 2023.
The CEO of the Centre for the Promotion of Private Enterprise, Muda Yusuf, has warned about the potential damaging effects of high-powered money on Nigeria’s macroeconomic environment. He emphasised the importance of keeping the ways and means of finances of the Central Bank of Nigeria (CBN) within statutory limits to avoid repeating the negative experiences of the past few years.
In line with this concern, there has been a significant increase in claims in the form of securities and shares, rising by 987.1 percent compared to the growth of 22.8 percent recorded at the end of December 2022.
This growth stands in contrast to the 4.6 percent decrease observed during the same period in 2022.
On the other hand, claims in the form of loans to the central government have declined by 60.78 percent, which is a notable contrast to the increases of 34.4 percent and 25.6 percent recorded at the end of December 2022 and end of June 2022, respectively.
