Data from the Central Bank of Nigeria (CBN) portrays a dangerous trend in currency in circulation in Nigeria. The apex bank data shows that currency in circulation in the economy rose to N4.04 trillion in June 2024.

The danger In the development is that 93.6 per cent of the huge sum in circulation is outside the banking system. In bare figures it means that the sum of N3.75 trillion is in unholy places in peoples homes leaving a scant N390 billion under CBN control.

The development Is catastrophic in an economy where the CBN has been hiking the monetary policy rate (MPR) in a desperate bid to tame spiraling inflation rate. The implication of the alarming trend in currency in circulation is that the CBN has lost control of the economy.

The apex bank cannot control inflation because it musters only three per cent of the currency in circulation. Central banks all over the world control inflation through absolute manipulation of liquidity in the system.

At the moment, the apex bank has tried that measure by hiking MPR to a record 26.7 per cent all in a bid to make the raising of loans less attractive. The measure is designed to reduce the liquidity in the system and in the process reduce demand and tame inflation.

The apex bank followed up its move to tame liquidity by raising banks cash reserve ratio (CRR) to a record 40 per cent. The implication of the high CRR requirement is that if a bank mobilises N100 billion, it can only lend out N60 billion while the remaining N40 billion is tied down in CBN vault in a desperate bid to reduce liquidity in the system and consequently tame demand in order to slow down inflationary trend.

From all indications it is now clear that the CBNs failure to tame inflation through manipulation of MPR and consequently the liquidity in the system emanates from the fact that the apex bank has no control of currency in circulation. The money it is trying to control is in peoples homes while CBNs merciless grip on liquidity further worsens a bad situation by making it difficult for economy operators to raise loans for the creation of jobs.

In an economy where unemployment at the last count was 33.3 per cent, the apex bank has inadvertently worsened the unemployment situation with its liquidity squeeze when the money it tries to control is outside the banking system.

Economy watchers blame the dangerous trend of cash hoarding in the country on a loss of confidence in the nations faltering banking system.

They contend that the loss of confidence in the banking system was instigated by the flawed currency redesign policy executed by CBN in 2023 during the tenure of Godwin Emefiele as CBN governor.

Emefiele had complained that 85 per cent of the currency in circulation at that time was outside the banking system and that CBN can only regain control of liquidity in the system by issuing new naira notes.

The N1,000, N500, and N200 notes were replaced with new ones.

Unfortunately, the laudable currency redesign policy was mismanaged by the apex bank. At the commencement of the policy in December 2022, the apex bank withdrew N3 trillion of the old notes from circulation only to replace them with a scant N600 billion.

The cash deficit in the banking system imposed an excruciating pain on depositors as transactions were practically carried out through trade by batter.

Banks feeble electronic networks were overwhelmed by a surge in electronic transfers in the face of a catastrophic cash deficit in the economy.

The mismanagement of the currency redesign policy retarded economic growth and imposed a big question mark on CBNs ability to manage the banking system and the entire economy.

Experts blame the development for the massive cash hoarding that keeps almost 94 per cent of the currency in circulation outside banks vaults.

Blueprint believes that the massive hoarding of cash is an indictment of CBNs control of the banking system. The apex bank could have halted the dangerous process if it was closely monitoring developments in the banking system.

The prudential guidelines restrict the amount of cash an individual can withdraw in a day to N2 million. CBN can enforce that rule by imposing heavy sanctions on banks that allow depositors to withdraw more than what is allowed by the guidelines.

Bank managers have flagrantly defied the guidelines because the regulator does not hold them accountable. As it is now, the situation has slipped out of control and the only way the CBN can assert control is through another currency redesign which would be resented by Nigerians because of their experience in 2023. We enjoin CBN to closely monitor the cash management by bank managers to avoid the current embarrassment. (Blueprint Editorial)