Liquidity Crisis Looms as 94% of Currency Circulates Outside Banks


By Niyi Jacobs 

Nigeria is facing a severe cash crisis, with a staggering 94% of the country’s currency in circulation being hoarded outside of banks by March 2024.

 This alarming trend, revealed by Central Bank of Nigeria (CBN) data, indicates a growing lack of confidence in the banking system and economic uncertainty.

The currency in circulation has more than doubled since January 2023, with a significant surge in cash held outside banks. In January 2023, the currency in circulation stood at N1.39 trillion, which more than doubled by January 2024 to reach N3.65 trillion. This trend continued with February recording a cash circulation of N982.1 billion in 2023 and a significant jump to N3.69 trillion in 2024. By March, the figures had escalated further from N1.68 trillion in 2023 to N3.87 trillion in 2024.

The cash hoarding behavior is attributed to the extensive cash scarcity experienced by Nigerians in 2023, resulting from the CBN’s flawed implementation of a naira redesign policy. The policy, aimed at transitioning towards a cashless economy and combating issues like vote-buying and financial crimes, led to widespread economic disruption and a loss of trust in the banking system.

As a result, people have become reluctant to deposit their money in banks, fostering a habit of cash hoarding. This trend continued into 2024, with 94% of the currency in circulation being kept outside of banks by March. The hoarding of such large amounts of cash outside the formal banking sector poses significant challenges, restricting the effective circulation of money, impacting liquidity, and reducing the efficacy of monetary policy in regulating the economy.

The situation could lead to higher transaction costs and reduced availability of credit, further slowing economic activity. The CBN has warned banks and Point of Sales (POS) merchants over the hoarding of cash in the country, noting that an alleged collusion between the banks and POS merchants disrupted the seamless circulation of the naira notes

. Despite the earlier suspension of the processing charges previously imposed on large cash deposits, Nigerians seem to hoard more cash at home rather than deposit in banks.