Cash outside banks surges by N181.7bn in one month

Nigeria has witnessed a significant rise in currency circulating outside the banking system, as cash held by individuals and businesses surged by N181.7bn within just one month. The development has raised concerns among financial experts and policymakers, who warn that the growing preference for cash-based transactions could undermine the country’s monetary stability, weaken financial inclusion efforts, and complicate the Central Bank of Nigeria’s broader economic reforms.

According to recently released monetary data, the volume of money in circulation outside formal banking channels climbed sharply, reflecting a renewed shift toward physical cash despite ongoing initiatives promoting digital payments and regulated financial services. The increase has been attributed to multiple economic pressures, including inflationary trends, rising transaction costs, public distrust in banking operations, and lingering effects of past cash shortages that continue to shape public behaviour.

Analysts say the spike suggests a resurgence of cash hoarding among individuals, traders, and businesses who prefer to keep money readily accessible rather than rely on banks. The memory of last year’s prolonged cash scarcity, triggered by currency redesign policies, created a deep sense of uncertainty that pushed many Nigerians to revert to cash as a safeguard. Even as normalcy returned and redesigned notes became accessible, behavioural patterns have not fully corrected.

The surge in cash outside the banking system is also being linked to rising living costs, which are pushing citizens to withdraw funds frequently for daily transactions. With prices of essential goods fluctuating and inflation affecting purchasing power, many Nigerians choose to hold cash to enable flexible spending. Small businesses—which dominate the country’s informal sector—also rely heavily on cash, especially in regions where digital infrastructure remains weak or unreliable.

Experts note that the informal sector plays a major role in these trends. Many traders continue to prefer cash payments to avoid delays, additional service charges, or concerns associated with digital transfers. In markets across the country, the culture of cash-based transactions remains strong, and this contributes significantly to currency circulating outside banks.

Although digital payment adoption in Nigeria has grown substantially in recent years, especially with the rise of mobile banking apps, fintech platforms, and USSD transactions, gaps remain in infrastructure, trust, and accessibility. Network failures, declined transfers, delayed alerts, and fraudulent activities have created hesitancy among users, making them more comfortable operating with cash when possible.

Financial analysts warn that the rising volume of cash outside the banking system poses risks to monetary policy management. When large amounts of currency circulate outside formal channels, it becomes difficult for the Central Bank to effectively track liquidity, control inflation, and implement reforms aimed at supporting currency stability. The trend can also fuel unregulated financial activities, distort economic data, and reduce banks’ ability to mobilise deposits needed for lending and economic development.

There are also implications for national security and anti-corruption efforts. High cash circulation can create favourable conditions for illicit financial transactions, money laundering, and tax evasion. With less money flowing through traceable channels, monitoring financial activities becomes more challenging for regulators and law enforcement agencies.

Despite these concerns, some experts argue that the surge reflects deeper structural issues that need to be addressed rather than merely reflecting a behavioural choice. They point to challenges such as inadequate trust in banking operations, limited financial literacy, unstable banking charges, and inconsistent communication from financial regulators regarding reforms. They stress that lasting solutions must involve strengthening consumer confidence and improving digital infrastructure rather than focusing solely on policy enforcement.

For its part, the Central Bank is expected to intensify its campaigns promoting cashless transactions while continuing to expand regulatory support for fintech innovation. Recent efforts include improving interbank transfer systems, enhancing mobile money frameworks, and working with telecom operators to stabilise USSD and online transaction channels. These initiatives are geared toward reducing friction in digital payments and making non-cash transactions more appealing to the public.

However, stakeholders note that increased investment in rural financial infrastructure will be necessary to achieve meaningful progress. Many Nigerians living outside urban centres have limited access to functional banking services or reliable internet connectivity. Without addressing these gaps, digital adoption will remain uneven, and cash circulation outside banks will continue to rise.

Some analysts also emphasise the importance of rebuilding consumer trust through transparent communication and consistent policy implementation. They argue that sudden or poorly explained policy changes—such as the previous cash withdrawal limits or abrupt currency redesign rollout—can create anxiety and uncertainty, pushing people to withdraw and stockpile cash.

As the economy continues to evolve, financial experts stress the need for balanced approaches that encourage digital adoption without imposing undue hardship. While the rise in cash outside banks is a concern for policymakers, analysts believe that with sustained reforms, improved infrastructure, and stronger collaboration between regulators and digital service providers, Nigeria can gradually shift toward a more stable and inclusive financial system.

 

For now, the sharp increase of N181.7bn in one month serves as a reminder of the persistent challenges facing Nigeria’s monetary environment. It highlights the delicate balance between regulatory ambitions and public behaviour, and the need for steady, well-coordinated strategies to modernise the financial landscape without disrupting everyday economic activities.