Cash Outside Banks Hits N4.3tn, CBN Raises Alarm Over Scarcity

Cash scarcity in Nigeria continues to worsen, with the amount of currency circulating outside the banking system reaching a record N4.29 trillion in October 2024. This figure represents 94.3% of the total currency in circulation, which is estimated at N4.55 trillion. The surge in cash held outside banks marks a 59% year-on-year increase, amounting to an additional N1.59 trillion compared to October 2023, when N2.70 trillion was recorded outside the banks. On a month-to-month basis, the amount of cash outside banks grew by 6.8%, rising from N4.02 trillion in September 2024.

This growing dependence on cash has become a significant obstacle to Nigeria’s efforts to promote a cashless economy. Despite the Central Bank of Nigeria’s (CBN) initiatives to modernize the financial system and encourage digital payments, many Nigerians continue to rely heavily on physical cash. This trend has persisted through 2024, with similar figures seen in earlier months. In August 2024, N3.87 trillion was recorded outside banks, representing 93.3% of the total currency, and N3.67 trillion in July, accounting for 90.5% of the total circulation.

Olusoji Oluwole, President of the Association of Senior Staff of Banks, Insurance, and Financial Institutions, blames the worsening cash shortage on the CBN’s failure to meet the cash demands of commercial banks. This has led to frustration among the public, who continue to struggle with limited access to cash in banking halls and ATMs. The situation highlights the country’s deep reliance on physical currency, despite the CBN’s ongoing push for digitization.

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To address the growing problem of cash shortages and the illegal flow of mint naira notes, the CBN has announced a fine of N150 million per branch for banks found guilty of facilitating the illegal trade of newly minted banknotes to currency hawkers. This new measure, announced on December 13, 2024, comes in response to reports of mint notes being sold at exorbitant rates by hawkers, further exacerbating the shortage of cash. The CBN has expressed concern that the practice is undermining efforts to distribute cash efficiently, making it harder for ordinary Nigerians to access money.

The CBN has vowed to crack down on the commodification of the naira through spot checks in banking halls and ATMs, as well as deploying mystery shoppers to identify areas where illegal hawking is taking place. The new directive indicates that any branch involved in such practices will face a N150 million fine for the first offense, with stricter penalties for subsequent violations under the Banks and Other Financial Institutions Act (BOFIA) 2020.

While these punitive measures are intended to curb the illegal circulation of mint notes, experts argue that addressing the deeper issues of cash dependency requires a more comprehensive approach. Expanding financial services in underserved areas, improving the security of digital payment systems, and encouraging a cultural shift away from cash transactions are all critical components in solving the cash crisis in Nigeria.

The persistent cash shortage and the increasing amount of currency held outside the banking system underscore serious challenges in Nigeria’s financial landscape. While the CBN’s crackdown on the illegal flow of mint naira notes is a necessary step, broader systemic reforms are essential to reduce reliance on cash and foster a more inclusive, digital financial system for the future.

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