Currency outside the banking system rose sharply by 55 per cent to N2.3 trillion in 2020 from N1.46 trillion in 2015, as Nigerians had to spend more on goods and services in response to sharp naira depreciation within the past five years.

Data from the Central Bank of Nigeria, CBN, obtained by Vanguard shows that the sharp increase in currency outside banks was driven by sharp naira depreciation in 2016 and 2020, which occasioned spike in prices of goods and services.

In 2016, the naira depreciated in the official foreign exchange market by 55 per cent to N305 per dollar from N197 per dollar in 2015 while the inflation rate rose sharply by nine percentage points to 18.55 per cent from 9.55 per cent in 2015.

Similarly, in 2020, the naira depreciated by 5.1 per cent in the Investors and Exporters (I&E) window while the inflation rate rose by 2.9 percentage points to 14.89 per cent in November 2020 from 11.98 per cent in 2019.

As a result of these two episodes of sharp naira depreciation and increase in the inflation rate, currency in circulation recorded the highest growth rates of 25 per cent and 12 per cent in 2016 and 2020.

According to the apex bank’s data, currency outside banks recorded the highest growth of 25 per cent, year-on-year, y/y, in 2016, when it rose to N1.82 trillion from N1.46 trillion in 2015.

This was followed by a 2.6 per cent, y/y growth to N1.78 trillion in 2017, and 7.0 per cent, y/y growth to N1.91 trillion in 2018.

Currency outside banks grew further by 6.0 per cent to N2.02 trillion in 2019. The second-highest growth of 12 per cent was recorded in 2020 when the currency in circulation rose to N2.26 trillion.

Following the same trend, bank reserves rose by 211 per cent during the five years period to N12.3 trillion from N3.95 trillion in 2015.

While bank reserves dropped by 16 per cent, y/y to N3.32 trillion in 2016 from N3.95 trillion in 2015, it picks up in 2017 with 17 per cent, y/y, growth to N3.98 trillion. This trend continued in 2018 with 11 per cent increase to N4.42 trillion.

The growth in bank reserves shot up in 2019 and 2020 recording 40 per cent and 98 per cent, y/y, growth to N6.2 trillion and N12.3 trillion respectively.