Cash in circulation drops by a meager 9.4% in 2022 despite Naira Redesign Policy in 2022

The recently published audited Financial Statement of the Central Bank of Nigeria (CBN), released on Thursday reveals that the CBN reduced the cash in circulation from N3,322 trillion in 2021 to N3.007 trillion at the end of its 2022 FY.

This represents a meagre 9.4% drop from the previous FY because, in October 2022, the former CBN Governor Godwin Emefiele disclosed at a CBN briefing that the N200, N500, and N1,000 notes were going to wear a new face.

Cash in circulation reduction

According to the former CBN Governor, one of the main reasons for the naira redesign was to reduce the cash in circulation because about 85% of the cash in circulation was outside the vaults of commercial banks as such there was the need to ensure that most of it was in the financial system to boost the economy.

“Statistics show that 85% of the currency in circulation was outside the vaults of our commercial banks. Data indicates that N2.73 trillion out of the N3.23 trillion currency in circulation was outside commercial banks’ vaults across the country.”

He also explained that the currency was long overdue and in his words;

“Our existing series of banknotes -the naira, has not been re-designed in the last 20 years. The bank reasonably determined to achieve the objective of its mandate as enshrined in Section 2B of the CBN Act of 2007 to ensure a strong and effective legal tender.”

Naira Redesign and Cash Swap Implementation

Despite several calls for caution by organizations such as the International Monetary Fund (IMF), the CBN went ahead to implement the Naira Redesign and Cash Swaps, which commenced on December 15, 2022.

The impact though deemed a success by the CBN led to major cash scarcity during the yuletide period of 2022.

The implementation also led to a major increase in the demand for digital financial services offered by financial services providers, leading to a major increase in e-payment transactions by 42% at the end of 2022.

The Effects of the Policy

According to many experts, although the policy intentions were in line with the requirements of the CBN Act, the policy implementation strategy was poor, and this led to major disruptions of economic activities into 2023.

The highlight was the legal tussle between some State Governors and the CBN which resulted in the policy being overturned in March 2023.

In all, despite the drive to reduce cash in circulation, the CBN is toward achieving a significant reduction, the revelation of a 9.4% drop, must going forward bring about the lessons learned from the approach and implementation of the apex bank.