Cash Hoarding Reaches 5tn Outside Banks – CBN

More than nine out of every ten naira in circulation remains outside the formal banking system despite aggressive digital payment initiatives. The latest Money and Credit Statistics released by the Central Bank of Nigeria revealed that cash held outside banks climbed to N5.19tn in May. This figure marks a steady increase from the N5.08tn recorded in the previous month. It represents an overwhelming 91.27 per cent of the total currency circulating nationwide. The persistent hoarding highlights the loosening grip of regulatory authorities over domestic liquidity. Most wealth stays firmly within households, businesses, and the expansive informal economy.

The data indicates that the apex bank’s cashless policy is failing to alter deep-rooted cash dependencies. Total currency in circulation expanded moderately to N5.69tn, leaving the formal banking system starved of physical deposits. This trend directly impacted the banking sector liquidity during the month under review. Institutional reserves held by deposit money banks at the central bank declined by 2.43 per cent to settle at N33.76tn. Commercial banks are struggling to attract structural deposits as citizens lose confidence in the formal financial architecture. This structural deficit weakens the capacity of local banks to support national credit growth.

The central bank recently launched its Payment System Vision 2028 to accelerate the transition toward technology-driven commerce. CBN Governor Olayemi Cardoso stated that the initiative aims to reduce currency held outside banks to less than 40 per cent. However, the current reality sits painfully far from that ambitious regulatory target. Fintech platforms, mobile money networks, and electronic transfers continue to expand their infrastructure. Yet, physical cash remains deeply embedded in daily retail markets, transport systems, and rural communities. Informal traders prefer the immediate certainty of paper money over electronic channels.

This widespread hoarding reflects a profound distrust in the stability of the domestic banking network. Past regulatory experiments, including the chaotic currency redesign of 2023, left millions of consumers trapped without access to their funds. Citizens now preserve cash cushions at home to guard against sudden network failures and unpredictable bank charges. High transaction taxes on digital transfers also push small merchants back toward cash transactions. The government essentially penalises electronic channels while demanding compliance. This policy contradiction keeps the informal sector entirely separated from state surveillance.

The inability to corral circulating currency severely hampers the effectiveness of national monetary policy. The central bank cannot combat galloping inflation when the vast majority of cash operates beyond its regulatory reach. Raising interest rates yields minimal results when the money supply bypasses the banking halls completely. The administration must address the underlying reasons for this systemic avoidance rather than pushing digital platforms onto an unwilling public. Restoring absolute trust in the banking system remains the only viable path to economic formalisation. Until then, paper currency will remain king.