Nigeria’s cash scarcity paradox continues to deepen, defying the substantial increase in currency circulating outside the formal banking system. A staggering N4.29 trillion was held outside banks in October 2024, representing a massive 94.3% of the total N4.55 trillion in circulation. This signifies a dramatic year-on-year surge of 59%, equivalent to N1.59 trillion, compared to October 2023. This trend of burgeoning cash outside the banking system has persisted throughout 2024, with September recording N4.02 trillion (93.1% of the total) and August reaching N3.87 trillion (93.3%). This escalating volume of cash held outside financial institutions, while seemingly contradictory to the prevailing scarcity, highlights a critical disconnect within the Nigerian financial ecosystem, raising concerns about the effectiveness of monetary policies and the challenges in modernizing the country’s financial landscape.
The persistent reliance on physical cash by a significant portion of the Nigerian populace, despite ongoing efforts to promote digital transactions, underscores the magnitude of the challenge. This strong preference for cash transactions fuels the demand outside formal channels, exacerbating the scarcity within the banking system. The significant growth in currency held outside banks month after month throughout 2024 demonstrates the entrenched nature of this cash-dependent behavior. This poses a significant obstacle to the Central Bank of Nigeria’s (CBN) objective of fostering a more modern and efficient financial system. The data paints a clear picture: the vast majority of Nigerians still prefer physical cash, thereby hindering the transition towards a cashless or less-cash economy.
The CBN attributes the escalating cash scarcity, ironically coinciding with increased currency outside banks, to the inability of commercial banks to meet public demand. This suggests potential systemic inefficiencies within the cash distribution network, including logistical bottlenecks and possibly, deliberate actions by some actors within the system. The President of the Association of Senior Staff of Banks, Insurance, and Financial Institutions has pointedly blamed the CBN for failing to adequately supply cash to commercial banks, further complicating the narrative and highlighting a potential conflict within the financial sector. This disparity between the increasing currency in circulation and the persistent scarcity within banks points towards a critical flaw in the distribution mechanism, necessitating urgent intervention.
In a decisive move to curb the illicit cash market and address the apparent discrepancy, the CBN announced a hefty N150 million fine per branch for any Deposit Money Bank found complicit in facilitating the illegal flow of mint naira notes to currency hawkers. This practice, rampant across the country, has seen Nigerians forced to pay exorbitant premiums to access their own money, further compounding the hardship caused by the cash scarcity. The CBN’s stringent measure highlights the seriousness of the situation and its commitment to combatting the illegal trade in naira notes, which undermines its monetary policies and fuels public frustration.
The CBN’s circular, issued in December 2024, emphasizes its growing concern over the commodification of the naira and the detrimental impact on efficient cash distribution. Referencing a previous directive from November 2024, the apex bank underscores its resolve to tackle the issue head-on. The threat of substantial financial penalties, coupled with the promised intensification of spot checks, mystery shopping exercises, and the potential application of stricter sanctions under the Banks and Other Financial Institutions Act 2020, signals the CBN’s determination to enforce compliance and hold erring financial institutions accountable.
The CBN’s multi-pronged approach, combining punitive measures with increased surveillance, reflects the urgency of the situation. The hefty fines are designed to deter banks from engaging in or facilitating illicit cash practices, while the enhanced monitoring mechanisms aim to expose and dismantle the networks involved in currency hawking. The CBN’s clear message is that it will not tolerate any actions that undermine its efforts to ensure equitable access to cash for all Nigerians. The effectiveness of these measures remains to be seen, but they represent a significant step towards addressing the root causes of the cash scarcity crisis and restoring public confidence in the financial system. The challenge for the CBN now is to effectively implement these measures and ensure that they translate into tangible improvements in cash availability for the average Nigerian.
