Currency outside banks (COB) reached an all-time high ((ATH) of N2.95 trillion in December, money and credit data released by the Central Bank of Nigeria (CBN) has revealed.
Last year, the size of COB rose by 18 per cent, from N2.5 trillion recorded in December 2020. From the end of 2019 to December 2020, currency outside banks increased by a similar magnitude, from N2 trillion to N2.5 trillion, translating to 23 per cent expansion in the fund.
Similarly, the money supply increased 13.8 per cent year-on-year (YoY), from N38.6 trillion recorded in December 2020 to approximately N44 trillion in December 2021. The growth in money supply last year was far higher than that of 2020 when it increased by a modest four per cent.
The speed of money supply in 2021 was 10.8 percentage points higher than the estimated three per cent in 2021 full-year growth. Some economic theorists suggest that the money supply should grow neck-in-neck with the speed of economic growth as an excessive increase in the money supply could trigger inflation.
The growth of COB (which reflects social-cultural practices, low access to banking services and a huge underground economy) in recent years, underlies the amount of work required to win the war against financial exclusion.
Money held outside the banks is not available for financial intermediation.
Oversized COB leaves the lending capacity of the financial institutions at less than its full capacity, with negative consequences on economic growth and employment. When it is unreasonably high, it could distort the effectiveness of monetary interventions.
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