The Nigerian Cash Landscape: A Year of Withdrawals and Shifting Trends
The Central Bank of Nigeria’s Money and Credit Statistics reveal a significant shift in the nation’s financial landscape between May 2024 and May 2025. A staggering N923.16 billion was withdrawn from bank vaults during this period, indicating a growing preference for holding cash outside the formal banking system. This trend is reflected in the increase of currency held outside banks, which rose from N3.71 trillion in May 2024 to N4.63 trillion in May 2025, a substantial 25% increase. While the total currency in circulation also increased, reaching N5.01 trillion in May 2025, the proportion held outside banks remained dominant at 92.4%. This highlights the prevalence of cash transactions and a potential hesitancy towards utilizing digital banking channels.
The surge in cash withdrawals raises important questions about the underlying factors driving this behavior. Economic uncertainties, potential distrust in the banking system, and a cultural preference for cash transactions are likely contributing to this trend. The sheer volume of withdrawals, totaling nearly a trillion Naira, underscores the magnitude of this shift and its potential implications for the Nigerian economy. This preference for physical cash over bank deposits limits the funds available within the formal banking sector for lending and investment, potentially hindering economic growth. Furthermore, it raises concerns about financial inclusion and the effectiveness of monetary policies aimed at controlling inflation and stimulating economic activity.
Analyzing the monthly fluctuations in currency held outside banks provides further insights into this evolving dynamic. Following the typical year-end surge in cash withdrawals during the December 2024 festive season, which saw the figure peak at N5.13 trillion, a downward trend emerged in the subsequent months. January 2025 witnessed a significant drop to N4.74 trillion, followed by a further decline to N4.52 trillion in February, the steepest drop of the year. This decline can be attributed to a combination of factors, including post-holiday spending adjustments and the impact of the central bank’s monetary policies, particularly its decision to maintain the benchmark Monetary Policy Rate at 27.5%.
However, this downward trend was temporarily interrupted in March 2025, with a slight uptick to N4.60 trillion. This temporary reversal proved short-lived, as April 2025 saw a renewed decline to N4.57 trillion, confirming the overall downward trajectory. This fluctuation suggests that while the central bank’s efforts to manage liquidity are having an impact, the underlying preference for holding cash outside the banking system remains a persistent challenge. The overall decline of N555 billion, or 10.8%, between December 2024 and April 2025, indicates the effectiveness of the central bank’s policies in curbing excess cash within the informal economy.
The Central Bank’s decision to hold the Monetary Policy Rate at 27.5% reflects its ongoing efforts to manage inflation and stabilize the economy. This high interest rate environment likely contributes to the observed fluctuations in cash holdings. While higher interest rates can incentivize saving and reduce borrowing, they can also create economic pressures that lead individuals to hold more cash for immediate needs. The interplay between these factors creates a complex dynamic that influences the flow of currency within and outside the banking system.
The significant withdrawals and the persistent preference for holding cash outside banks underscore the need for a deeper understanding of the factors driving this trend. Addressing these underlying issues is crucial for promoting financial inclusion, enhancing the effectiveness of monetary policy, and fostering sustainable economic growth in Nigeria. Further research is needed to explore the motivations behind this behavior and to develop strategies that encourage greater utilization of formal banking channels. This could involve initiatives to build trust in the banking system, improve access to digital financial services, and promote financial literacy among the population. Ultimately, a more nuanced understanding of the Nigerian cash landscape is essential for shaping effective policies that can promote a more robust and inclusive financial system.
