Kayode Tokede
Economists have expressed concerns over the exponential increase in currency in circulation, which reached N3.31 trillion in April 2022, attributing it to political spending towards political parties’ primary elections.
Currency in circulation has been on the increase in 2022, adding 0.62 per cent or N20.5billion from N3.29 trillion in January 2022 to N3.31trillion as of April 2022.
Currency in circulation reached the historical N3trillion mark in November 2021 as banks customers withdraw physical cash amid festive period.
According to the CBN’s ‘Money and Credit Statistics’ currency in circulation in Year-on-Year (YoY) performance increased by 18.13 per cent from N2.79 trillion it was April 2021.
The CBN had reported N3.25 trillion and N3.245 trillion in circulation between February and March 2022, respectively.
Also, currency outside the banking sector moved to N2.78trillion in April 2022, an increase of about 0.03per cent or N771million from N2.779 trillion CBN reported in January 2022.
Nigeria’s currency circulating in the economy has recorded significant growth since the CBN maintained its dovish monetary approach as a means to ensure the recovery of the nation’s economy, following the recession recorded in 2020, caused by the covid-19 pandemic.
Several intervention policies pushed currency in circulation to its highest level in history in December 2021.
Economist and President, Bank Customers Association of Nigeria (BCAN), Dr. Uju Ogubunka believe spending towards the primary elections of political parties was the major driver of the increase.
According to him, “Politicians are spending more money and it will definitely affect not just currency in circulation alone but the foreign exchange market.
“It will get worst when politicians start the main campaign towards 2023. As you likely know, the online system has not been effective and even it does, cash will still be the main drivers for politicians and it has its implications on our national economy.”
Speaking, Prof. Hassan Oaikhenan of the Department of Economics, University of Benin, said the hike in currency in circulation cannot be split from political season, stressing the dwindling Naira also cannot be divorce from the political tension in the country.
“It is an undesirable state and added to that the looting in the system to win a political position in the country, ”he said.
In addition, the Chief Operating Officer, InvestData Limited, Mr. Ambrose Omordion noted that political spending this year has impacted on currency in circulation and dwindling foreign exchange.
According to him, the political activities were peaceful but currency in circulation was on increase as candidates spent to outshine each other.
“The increasing spending by politicians is not helping our economy,” he added.
Analyst at PAC Holdings, Mr. Wole Adeyey hinted that a double-digit inflation rate is responsible for hike in currency in circulation, stressing that political spending also played its role.
He also expressed that most banks in Nigeria showed a significant rise in ATM withdrawals and this could be linked to increase in currency in circulation
According to him: “Many things may have contributed N3.31trillion in currency in circulation. The inflation rate at 16.83per cent is still on high and it has reflected in the prices of goods and services that have increased significantly in the market, hence people need to spend more money. Also, the persistent depreciation of Naira in the foreign exchange market shows that people need more Naira to exchange for one US dollar.
“Also, data from most banks in Nigeria showed a significant rise in ATM withdrawals and this could be linked to increase in currency in circulation. In addition, the increase in domestic credit may have contributed to higher currency in circulation.”
On his part, the Vice President, Highcap securities limited, Mr. David Adnori attributed hike in currency in circulation to money created by the CBN to finance federal government budget and intervention by the apex bank in some key sectors.
In his words: “In my own view, the money created by CBN through lending to banks to assist them finance some key projects in the economy might increase physical currency.”
Meanwhile, the CBN had warned banks against accepting mutilated naira notes, explaining that they were not the real currencies in circulation.
In a circular to the Deposit Money Banks (DMBs), titled, “Treatment of composed banknotes,” it said, “The management of the Central Bank of Nigeria observed with concern the increase number of composed banknotes deposited by DMBs and request for replacement of such banknotes by members of the public.
“The existence of composed banknotes in the economy falsifies the true value of currency in circulation and can also be avenue for fraudulent activities. A composed banknote is a banknote that comprises of several parts of different banknotes of the same denomination put together with the intention of receiving value.”
Consequently, it added that any composed banknote discovered in the deposit of DMBs would attract a penalty of 400 per cent of the value.
Currency in circulation is defined as currency outside the vaults of the central bank; that is, all legal tender currency in the hands of the general public and in the vaults of the Deposit Money Banks, according to the apex bank.
The CBN stated that it employed the “accounting/statistical/withdrawals and deposits approach” to compute the currency in circulation in Nigeria.
This approach involves tracking the movements in currency in circulation on a transaction-by-transaction basis.
It said for every withdrawal made by a bank at one of CBN’s branches, an increase in the CIC was recorded, adding that for every deposit made by a bank at one of CBN’s branches, a decrease in the CIC was recorded.
The transactions are all recorded in the CBN’s CIC account, and the balance on the account at any point in time represents the country’s currency in circulation.
