As CBN Tackles Inflation, Currency In Circulation Dips By N72.5bn In June

Following the Central Bank of Nigeria (CBN) to manage exchange rate, currency in circulation dropped by N72.5billion or 2.2 per cent from N3.33trillion as at the end of May to N3.26trillion at the end of June 2022, the latest statistics from the CBN has revealed.

This is on the back of several monetary policies adopted by the apex bank to mop-up liquidity in the economy to tackle inflationary pressure.

The CBN defined currency in circulation as currency outside the vaults of the apex bank; that is, all legal tender currency in the hands of the general public and in the vaults of the Deposit Money Banks (DMBs).

According to figures from the CBN, the currency in circulation has witnessed second consecutive decline since April when it hits all-time high over political spending, hike in inflation, among other factors.

The CBN’s “Money and Credit” statistics revealed that currency in circulation in April 2022 stood at N3.35trillion from N3.25trillion in March.

Findings by THISDAY revealed that currency in circulation dropped by N19.75billion or 0.59 per cent in April, third highest decline this year.

The apex bank in January reported N3.28trillion currency in circulation and it dropped by N37.8billion or 1.15 per cent to N3.25trillion in February 2022.

Analysts attributed the drop in currency in circulation to CBN’s hike in Monetary Policy Rate (MPR) to 13 per cent in May from 11.5 per cent it was September 22, 2020.

Speaking with THISDAY, Head, Financial Institutions Ratings at Agusto & Co, Mr. Ayokunle Olubunmi said: “The CBN is trying to manage the exchange rate and there is an assumed correlation between the amount of liquidity in the system and pressure on the exchange. That’s why whenever the CBN believes that there is excess liquidity in the system, they use various tools to mop up the amount of currency in circulation.”

Commenting on the decline in currency in circulation for June analyst at PAC Holdings, Mr. Wole Adeyeye, “The recent increase in interest rate, which was triggered by the rise in MPR, encouraged people to invest in risk-free securities and place their money with banks.

“In addition, the weak spending by consumers and improved electronic banking patronage may have also contributed to the drop in currency in circulation.”

In the same vein, currency outside banks (COB) dropped to N2.72trillion in June, representing a decline of N42.04billion or 1.52 per cent from N2.76trillion reported by the apex bank in May.

COB reached N2.83 trillion in April, the highest in 2022 from N2.78 trillion reported by CBN in January.

COB had reached an all-time high of N2.94 trillion in December 2021, according to the CBN’s “Money and Credit” statistics.

In 2021, the size of COB rose by 17.7 per cent, from N2.49 trillion recorded in December 2020. From the end of 2019 to December 2020, currency outside banks increased by a similar magnitude, from N2 trillion to N2.5 trillion, translating to 23 per cent expansion in the fund.

The growth of COB (which reflects social-cultural practices, low access to banking services and a huge underground economy) in recent years, underlies the amount of work required to win the war against financial exclusion.

Money held outside the banks is not available for financial intermediation.

In addition, the demand deposits account (DDA) also dropped by N184.98billion or 1.04 per cent to N17.67trillion in June from N17.85trillion reported in May 2022.

DDA is a bank account from which deposited funds can be withdrawn at any time, without advance notice. DDA accounts can pay interest on the deposited funds but aren’t required to. Checking accounts and savings accounts are common types of DDAs.

The statistics by CBN revealed that DDA has increased by N1.86trillion or 11.8per cent in Year-till-Date (YtD) to N17.67trillion from N15.81trillion in January 2022.