Cash Outside Banks Declines to N4.45tn as CBN’s Policies Take Effect

Nigeria’s cash circulating outside the banking system has dropped to N4.45 trillion as of August 2025, according to the latest data released by the Central Bank of Nigeria (CBN). The decline marks a significant improvement in liquidity management and is seen as a direct result of the apex bank’s ongoing monetary tightening measures and push toward a cash-lite economy.

The report, which forms part of the CBN’s Money and Credit Statistics, indicates that currency outside banks fell by about N260 billion compared to the N4.71 trillion recorded in July 2025. Analysts attribute the reduction to a combination of factors, including the Central Bank’s consistent mop-up of excess liquidity, the enforcement of cash withdrawal limits, and the renewed drive to encourage electronic payments and banking inclusion across the country.

Financial experts believe the policy measures have started yielding positive outcomes by improving money circulation within the formal financial system and strengthening monetary control. The reduction in cash outside banks also supports the CBN’s objective of curbing inflationary pressures, stabilizing the naira, and discouraging hoarding and speculative demand for foreign exchange.

Speaking on the development, a senior CBN official who preferred anonymity explained that the apex bank’s efforts are aimed at ensuring that money remains within the banking system to enhance transparency and traceability. “We have been consistent in our implementation of cash management reforms to ensure effective liquidity control. The result we are seeing today shows that more funds are being retained within the formal system, which is positive for economic planning and financial stability,” the official said.

The official further emphasized that the CBN’s digital payment initiatives—such as the promotion of eNaira, mobile transfers, and instant payment channels—are contributing to the gradual decline in cash hoarding. According to him, the apex bank is working with financial institutions and fintechs to expand the adoption of digital solutions that reduce reliance on physical cash.

Analysts note that the reduction in currency outside banks could also help improve the effectiveness of monetary policy transmission. When more money flows through formal financial institutions, the CBN can better monitor liquidity levels, manage inflation, and guide interest rate movements. It also reduces the risks associated with illicit financial flows, unrecorded transactions, and cash-based criminal activities.

Economic commentator, Dr. Tunde Adebayo, said the development underscores the impact of the CBN’s proactive stance on monetary stability. “The drop in cash outside the banking system shows that the monetary tightening and policy interventions are working. When people keep money within the banks, it supports savings mobilization, strengthens the credit system, and enhances economic transparency,” he said.

Adebayo, however, cautioned that while the decline is positive, it is essential for the CBN to balance liquidity management with access to cash for legitimate economic activities. “Small businesses, especially those in rural areas, still depend heavily on cash for transactions. Therefore, the CBN must ensure that financial inclusion programs continue to expand access to banking services to avoid excluding rural economies,” he added.

Data from the CBN also show that total currency in circulation stood at N7.27 trillion in August, slightly down from N7.45 trillion in July. This indicates that while total cash volume has declined marginally, the proportion of money held outside banks remains significant, at about 61 per cent of the total.

Economists argue that this ratio remains too high for an economy seeking to modernize its financial system. They suggest that Nigeria should aim to reduce cash outside banks to below 40 per cent of total currency in circulation to ensure optimal control over monetary policy and minimize inflation risks.

The continued expansion of digital financial services is expected to accelerate this transition. In recent months, banks and payment service providers have recorded a surge in electronic transactions, with mobile transfers and POS payments growing rapidly. The Nigerian Interbank Settlement System (NIBSS) reported that the volume of instant payments grew by over 20 per cent year-on-year, reflecting a growing trust in cashless channels.

Despite these gains, challenges remain. Network downtimes, transaction charges, and limited financial literacy continue to hinder the adoption of digital banking in some parts of the country. Industry stakeholders have therefore urged the CBN to work with telecom operators and fintech companies to improve infrastructure reliability and affordability.

In addition, analysts highlight the need for continuous public sensitization on the benefits of cashless transactions. Many Nigerians, particularly in semi-urban and rural areas, still view physical cash as more secure and tangible. Bridging this mindset gap is essential for sustaining the downward trend in cash outside banks.

The decline in cash holdings outside the financial system comes at a time when the CBN is intensifying its efforts to combat inflation, which remains above 20 per cent. The bank has raised the Monetary Policy Rate (MPR) multiple times in 2025 to control money supply and curb price increases. By reducing untracked cash circulation, the apex bank gains better control over liquidity and inflationary dynamics.

Looking ahead, financial analysts predict that the CBN will maintain its cautious policy stance to ensure the gains achieved so far are not reversed. If current reforms persist—particularly in enhancing financial inclusion, promoting digital payments, and enforcing withdrawal limits—the volume of cash outside banks could drop further by the end of the year.

 

Overall, the N4.45 trillion figure represents a step toward restoring monetary discipline and deepening Nigeria’s transition to a more transparent, digitized economy. However, sustaining this momentum will depend on consistent policy execution, technological reliability, and continued collaboration between the Central Bank, financial institutions, and the Nigerian public.