Cash Held Outside Banks Reaches 92% of Currency in Circulation in November 2023, Surpassing Pre-Naira Redesign Levels

In a notable trend, the amount of cash held outside banks in Nigeria has reached 92% of the total currency in circulation as of November 2023. This surpasses the levels observed before the Naira redesign, indicating a preference for holding physical cash among the populace. Several factors contribute to this trend, reflecting both economic and behavioral considerations.

Key Observations and Factors:

1. **Preference for Cash:**
– The significant proportion of cash held outside banks suggests a prevailing preference for physical currency among the public. This preference may be influenced by factors such as convenience, perceived privacy, and a cultural inclination towards using cash for transactions.

2. **Post-Naira Redesign Dynamics:**
– The observation that cash outside banks has exceeded pre-Naira redesign levels indicates a sustained reliance on physical currency despite efforts to introduce new banknotes with enhanced security features. Understanding the reasons behind this trend requires a closer examination of public perceptions and behaviors related to the redesigned Naira notes.

3. **Economic Factors:**
– Economic considerations, including inflation and fluctuations in the value of the Naira, can influence individuals’ decisions to hold cash. Some may view holding physical currency as a way to safeguard against potential economic uncertainties or depreciation of the currency.

4. **Informal Economy:**
– Nigeria has a significant informal economy, and participants in this sector often prefer cash transactions. The prevalence of cash transactions in informal economic activities contributes to the high level of physical currency in circulation.

5. **Financial Inclusion Challenges:**
– Challenges related to financial inclusion, including limited access to banking services in certain regions or among specific demographics, may contribute to a higher reliance on cash. Individuals without easy access to banking facilities may opt for cash transactions.

6. **Cultural and Social Factors:**
– Cultural norms and social practices can play a role in shaping individuals’ preferences for using cash. The familiarity and long-standing tradition of cash transactions in daily life may contribute to the continued prominence of physical currency.

7. **Government Policies and Communication:**
– Government policies and communication strategies regarding the use of cash versus electronic payment methods can influence public behavior. Efforts to promote digital transactions and highlight the benefits of electronic payments may impact the future trajectory of cash usage.

Understanding the dynamics of cash usage outside banks provides valuable insights into the financial behaviors of the population. While technological advancements and digital financial services are on the rise, the prevalence of physical currency highlights the complex interplay of economic, cultural, and behavioral factors in shaping payment preferences.

It will be essential for policymakers, financial institutions, and relevant stakeholders to consider these factors when designing strategies to promote financial inclusion, encourage digital transactions, and address the broader economic landscape.