Money supply, known as M2, has risen to all-time high of N50.58 trillion in October 2022 as the Central Bank of Nigeria (CBN) plans to redesign the current banknotes.
Data from the CBN website showed that money supply, which is the total stock of money circulating in an economy, rose by 21.97 percent year-over-year from N41.47 trillion in October 2021 to N50.58 trillion in 2022.
The year-to-date, money supply increased by 12.17 percent from N45.09 trillion in January 2022.
Money supply consists of quasi-money, currency outside banks and demand deposits.
A breakdown of the money supply from the data shows that quasi-money – assets that are highly liquid and can easily be converted to cash – went up by 10.42 percent year-to-date to N29.25 trillion in October 2022 compared to N26.49 trillion in January this year.
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Currency outside banks increased marginally by 2.16 percent year-to-date from N2.78 trillion in January 2022 to N2.84 trillion in October 2022.
Demand deposits – money deposited in a bank account that can be withdrawn on demand without advance notice – rose to N18.48 trillion in October 2022 compared to N15.81 trillion in January this year, representing 16.98 percent year-to-date.
Nigeria’s Central Bank recently announced the redesign, production, release, and circulation of new series of three banknotes out of the existing eight banknotes, comprising N200, N500, and N1000 denominations, respectively, effective December 15, 2022; after its launch by President Muhammad Buhari.
On December 15, traders will be reluctant to accept old notes. They will accept only new notes, dollars or electronic payments, leading to a bi-monetary system, increasing uncertainty and reducing investor confidence, said Bismarck Rewane, managing director/chief executive officer of Financial Derivatives Company Limited, in his monthly presentation at Lagos Business School (LBS).
He said the planned new Banknotes will not reduce inflation, rather it will actually accentuate it because cash is only 6 percent of money supply, adding that money supply growth average over the last 5years is 12.5 percent.
Data from the CBN points to significant hoarding of naira notes by members of the public, as 84.5 percent (N2.73 trillion) of the currency in circulation is outside the vaults of the commercial banks. The CBN also considered the value of currency in circulation, which had spiked by 121 percent since 2015, according to Agusto &Co, in its November newsletter.
The sudden announcement of the redesign project surprised the financial markets, analysts and even the finance minister, triggering a wave of uncertainty and heightening speculative activity against the naira in the parallel market as many hoarders rushed to offload their naira stockpiles. Within 10 days of the announcement, the naira lost 16.3 percent to an all-time low of N890/$ as at November 4, 2022.
Consequently, the spread between the official (N442/$) and parallel market rates widened to 101 percent – the highest ever.
