A staggering 90.5 percent of Nigeria’s ₦5.24 trillion currency in circulation remains outside the banking system, raising concerns about financial inclusion, cash management, and economic stability. According to the latest data from the Central Bank of Nigeria (CBN), this trend continued despite efforts to promote digital transactions and reduce reliance on physical cash.
Nigeria’s total currency in circulation surged to ₦5.24 trillion in January 2025, representing a 43.4 per cent increase from ₦3.65 trillion in January 2024. However, ₦4.74 trillion of this total is held outside banks, meaning that the vast majority of cash in circulation is not within the formal financial system.
Despite government initiatives to encourage digital payments, cash usage remains prevalent. The absence of December 2024 data complicates efforts to assess the full impact of seasonal spending on cash circulation. Typically, December experiences a surge in withdrawals due to increased spending on travel, celebrations, and informal sector transactions.
A closer look at recent trends shows a consistent increase in both total currency in circulation and cash held outside banks. In November 2024, currency in circulation stood at ₦4.88 trillion, with ₦4.65 trillion (95.4 percent) outside bank vaults. By June 2024, these figures were ₦4.05 trillion in circulation and ₦3.79 trillion outside banks, accounting for 93.9 percent of the total.
This pattern highlights a preference for cash transactions, particularly among businesses and individuals operating in the informal economy. The lack of trust in the banking system, limited financial access in rural areas, and frequent technical issues with digital payment platforms contribute to this reliance on cash.
The high volume of cash outside banks presents challenges for the financial sector and economic policymakers. With over 90 percent of total cash held outside banks, deposit mobilization remains weak, reducing banks’ ability to provide loans and credit to businesses.
Since banks depend on customer deposits to fund lending and investments, this trend could hinder economic growth and business expansion.
Monetary policy effectiveness is also a concern. The CBN relies on tools such as open market operations and interest rate adjustments to manage liquidity and inflation. However, when a large portion of cash remains outside the banking system, these measures become less effective, making it harder to control inflation and stabilize the economy.
The persistence of cash transactions, despite efforts to expand digital banking, underscores Nigeria’s slow progress in financial inclusion. Many Nigerians, particularly in rural areas and the informal sector, continue to depend on cash due to limited access to banking services and unreliable digital payment infrastructure. This excessive reliance on cash could further drive inflation if liquidity levels rise without a corresponding increase in goods and services.
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At the 297th Monetary Policy Committee (MPC) meeting, CBN Governor Olayemi Cardoso announced new measures to address cash circulation challenges. The CBN plans to penalize banks that fail to provide sufficient cash through automated teller machines (ATMs) to ensure cash availability for customers.
Additionally, the CBN will inject ₦1.4 trillion into circulation over the next three months to improve cash flow across bank branches and ATMs. This initiative aims to address cash shortages and restore public confidence in the banking system’s ability to meet financial demands.
As Nigeria seeks to balance cash liquidity and financial system stability, experts emphasize the need to strengthen digital payment infrastructure and expand banking access. Reducing the country’s dependence on physical cash will require continued investment in financial technology, improved banking services, and policies that encourage greater participation in the formal financial system.
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