Money supply in Nigeria increased to N52.14 trillion in 2022 despite aggressive CBN policies

Despite many moves by the Central Bank of Nigeria to soak up liquidity in the Nigerian economy last year, the nation’s money supply still rose to an all-time high of N52.14 trillion.

According to data From the main bank, Nigeria’s money supply gained 8.32 trillion naira in the year of review after jumping from 43.82 trillion naira in 2021. This indicates an increase of 19% yoy.

Nigeria posted a record inflation rate in 2022 triggered by the Russia-Ukraine war and the global energy crisis. In November 2022, Nigeria’s inflation rate rose to a 17-year high of 21.47% and moderated, albeit slightly, to 21.34% the following month.

In an attempt to control the rising inflation rate in the country, which had risen for eleven consecutive months, the CBN’s Monetary Policy Committee (MPC) raised the benchmark interest rate (TPM) by a collective 500 basis points to 16, 5% in November 2022. However, the committee followed with an additional 100 basis point increase to 17.5% in January 2023.

The CBN’s tightening stance was aimed at reducing the money supply at home and the currency outside of bank vaults, which is believed to be fueling inflationary pressure. Unfortunately, the increase in the money supply has not abated, with a steady upward trend since August 2022.

What the data says: The money supply, which is a function of the level of liquidity in the economy, comprises net foreign assets and net domestic assets.

  • According to the data, net foreign assets stood at N4.25 trillion as of December 2022, a decrease of N4.56 trillion compared to N8.81 trillion recorded in the corresponding period of 2021.
  • On the other hand, the net domestic assets increased by a whopping 12.88 trillion naira in the year of review to stand at 47.89 trillion naira from 35 trillion naira a year earlier. This implies that the growth of Nigeria’s money supply is driven by the increase in net domestic assets.
  • This is largely due to increased domestic credit, which stood at 66.46 trillion naira at the end of the year.
  • A further breakdown showed that credit to the government increased by a whopping 11.33 trillion naira to stand at 24.66 trillion naira, while credit to the private sector increased by 6.6 trillion naira to stand at 41 .8 trillion naira in the same period.

About the currency in circulation: The total currency in circulation in the Nigerian economy stood at 3.01 trillion naira at the end of the year, a reduction of 313.1 billion naira compared to 3.33 trillion naira in the previous year.

Currency outside of bank vaults also stood at N2.57 trillion, representing 85.2% of the total currency in circulation.

Meanwhile, central bank governor Godwin Emefiele’s recent announcement indicated that currency outside banks has fallen significantly to N900 billion, thanks to the naira redraw program and cash swap policy.

Nairametry reported previously, the CBN said it had recovered N1.9 trillion of the currency that was previously outside the banking system as of January 2023.

  • Ladies and gentlemen, the data available at the Central Bank of Nigeria has shown that in 2015, the currency in circulation was only N1.4 trillion..”
  • As of October 2022, cash in circulation had risen to 3.23 trillion naira; of which only N500 billion were within the banking industry and N2.7 trillion were permanently kept in people’s homes..”
  • So far and since the start of this programme, we have raised around N1.9 billion; leaving us with around N900 billion (N500 billion + N1.9 billion),” Emefiele said.

CBN stops private sector inventions: Meanwhile, CBN interventions to the private sector by the main bank have been put on hold since November last year, as part of the main bank’s move to get a firmer grip on the money supply in the country.

According to the statement of the recently concluded monetary policy meeting held on January 23 and 24, 2023, the intervention of the real sector in January 2023 remained unchanged compared to November 2022.

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