Currency in circulation drops N7.51bn in July, first decline in 5 months

In July 2023, Nigeria experienced a decline in its currency in circulation, as indicated by the most recent data released by the Central Bank of Nigeria (CBN).

The data reveals that the amount of currency in circulation decreased to N2.59 trillion in July 2023, down from N2.6 trillion in June 2023. This marks the first monthly reduction since February 2023, when it drastically dropped to N982 billion following the naira swap crisis.

Furthermore, the currency held outside of banks also experienced a minor decrease, shifting from N2.26 trillion in June to N2.20 trillion in the reviewed month.

The peak of currency in circulation was observed in July 2022, reaching N3.2 trillion. However, subsequent to that period, the trend has been downward, influenced by Nigeria’s grappling with high inflation rates and a weakening currency.

The marginal decline in currency in circulation could be attributed to several factors, such as the increased use of electronic payment channels, the reduced demand for cash, and the CBN’s efforts to mop up excess liquidity in the system.

The CBN has been implementing various policies to stabilize the naira and curb inflation, such as increasing the cash reserve ratio (CRR) of banks, conducting open market operations (OMO), and adjusting the exchange rate regime.

However, these measures have not been enough to stem the tide of naira depreciation and inflationary pressures.

The naira has lost over 40% of its value against the US dollar in the past year, trading at around N870 per dollar in the parallel market as of August 2023. The official exchange rate, which is used by exporters and investors closed around N761/$1.

Meanwhile, inflation has remained above the CBN’s target single-digit range, hitting  24.08% in July 2023. The high inflation rate has eroded the purchasing power of Nigerians and increased the cost of living.

The CBN has reiterated its commitment to achieving price stability and exchange rate stability, but analysts have expressed doubts about its ability to do so given the structural and fiscal challenges facing the economy.

Some have called for more coordination between the monetary and fiscal authorities to address the underlying issues of low productivity, weak revenue generation, and rising debt levels.