Money supply hits record N50.58trn amid naira redesign
MONEY supply, also known as M2, rose to an all-time high of N50.58 trillion in October, the month the Central Bank of Nigeria (CBN) announced its plan to redesign highervalue naira notes.
Data from CBN’S website showed that money supply, which is the total stock of money circulating in an economy, rose by 21.97 percent year-on-year from N41.47 trillion in October 2021 to N50.58 trillion in 2022.
Money supply increased by 12.17 percent as of October from N45.09 trillion at the start of the year.
Money supply consists of quasi money, currency outside banks and demand deposits.
A breakdown of the money supply from the data shows that quasi money, also known as near money, which refers to assets that are highly liquid and can easily be converted to cash, increased by 10.42 percent to N29.25 trillion in October, compared to N26.49 trillion in January this year.
Currency outside banks increased by 2.16 percent from N2.78 trillion in January to N2.84 trillion in October.
Demand deposits refer to the money deposited in a bank account that can be withdrawn on demand without advance notice. This rose to N18.48 trillion in October from N15.81 trillion in January, representing 16.98 percent year-to-date.
The CBN recently announced the redesign, production, release, and circulation of new series of N200,
N500, and N1,000 notes, effective December 15, 2022.
“On December 15, traders will be reluctant to accept old notes. They will accept only new notes, dollars or electronic payments, leading to a bi-monetary system, increasing uncertainty and reducing investor confidence,” said Bismarck Rewane, managing director/chief executive officer of Financial Derivatives Company Limited, in his monthly presentation at Lagos Business School’s breakfast meeting.
He said the planned new banknotes will not reduce inflation because cash is only 6 percent of money supply, adding that money supply growth average over the last five years is 12.5 percent.
Data from the CBN point to significant hoarding of naira notes by members of the public, as 84.5 percent (N2.73 trillion) of the currency in circulation was outside the vaults of the commercial banks. The CBN also considered the value of currency in circulation, which had spiked by 121 percent since 2015, Agusto & Co said in its November newsletter.
The sudden announcement of the redesign project surprised the financial markets, analysts and even the finance minister, triggering a wave of uncertainty and heightening speculative activity against the naira in the parallel market as many hoarders rushed to offload their naira stockpiles. Within 10 days of the announcement, the naira fell 16.3 percent to an all-time low of N890/$ at the parallel market as at November 4.