New data from the Central Bank of Nigeria (CBN) reveals a decline in the country’s currency in circulation during July 2023, underscoring the ongoing economic struggles facing the nation.
According to the CBN’s latest report, the currency in circulation dipped from N2.6 trillion in June 2023 to N2.59 trillion in July 2023. This marks the first monthly decrease since February 2023, when it plummeted to N982 billion following the naira swap crisis.
Notably, currency outside the banking system also experienced a slight contraction, dropping from N2.26 trillion in June to N2.20 trillion in the reviewed month.
The data points out that the currency in circulation, reflecting physical cash and coins beyond the banking realm, reached its zenith in July 2022 at N3.2 trillion. However, this upward trajectory has since reversed, with Nigeria grappling with surging inflation and a weakening currency.
This marginal reduction in currency circulation can be attributed to various factors, including the escalating use of electronic payment channels, a decreased reliance on cash, and the CBN’s efforts to absorb excess liquidity from the system.
In response to economic challenges, the CBN has implemented a series of measures to stabilize the naira and counter inflation. These actions include raising the cash reserve ratio (CRR) for banks, conducting open market operations (OMO), and adjusting the exchange rate regime.
Despite these efforts, the naira’s value has continued to slide, with over a 40% depreciation against the US dollar in the past year. As of August 2023, the naira trades at approximately N870 per dollar in the parallel market. Meanwhile, the official exchange rate used by exporters and investors stands around N761/$1.
Concurrently, inflation remains a pressing concern, exceeding the CBN’s targeted single-digit range and hitting 24.08% in July 2023. This high inflation rate has eroded the purchasing power of Nigerians and escalated the cost of living.
The CBN has reiterated its commitment to achieving both price stability and exchange rate stability. However, analysts have expressed skepticism about the institution’s capacity to achieve these objectives given the complex structural and fiscal challenges the economy confronts.
Calls for enhanced coordination between monetary and fiscal authorities have emerged, aimed at addressing underlying issues such as low productivity, feeble revenue generation, and mounting debt levels. These challenges have emphasized the need for comprehensive and cohesive economic strategies.
