Nigeria’s Cash Demand Surges Again as More Money Leaves the Banks

Nigeria’s hunger for physical cash picked up speed in October, with Currency Outside Banks (COB) rising for the second straight month to N4.65 trillion. The increase suggests that households and businesses are leaning heavily on cash again even as the Central Bank of Nigeria (CBN) continues tightening monetary policy to control liquidity.

Fresh data from the CBN shows that COB grew by 4.07% in October, adding N181.71 billion to the N4.47 trillion recorded in September. This comes after only a small uptick in September, following three months of consecutive declines between June and August. Earlier in the year, the figure hovered around N4.5 trillion, and even dipped from N5.13 trillion in December 2024 to N4.72 trillion in January.

Currency in Circulation (CIC) also went up, reaching N5.06 trillion in October a 2.12% rise from September. While CIC has fluctuated around the N5 trillion mark most of the year, the latest jump reinforces the growing movement of cash into the informal space.

The CBN report also highlighted an increase in private-sector credit, which grew by 2.60% to N74.41 trillion in October. Though the monthly rise is strong, year-on-year figures show a slight dip compared to October 2024. Government borrowing followed a similar pattern, rising month-on-month but falling sharply when viewed over the past year.

The renewed shift toward physical cash raises economic red flags. High volumes of money outside the banking system make it harder for the CBN to manage inflation, limit banks’ access to deposits, encourage informal transactions, and weaken the overall impact of monetary policy.

This trend is emerging at a delicate time for the central bank. In September, the Monetary Policy Committee cut the benchmark interest rate its first reduction since 2020 after inflation began to ease and FX conditions improved. But by November, the MPC decided to hold the rate at 27% and adjusted the policy corridor to discourage banks from stashing funds with the CBN.

The steady rise in cash outside banks now adds another layer of complexity to the CBN’s efforts to keep inflation in check and maintain monetary stability.