Naira Scarcity looms as CBN set to reduce cash supply : The members of the Central Bank of Nigeria’s (CBN) Monetary Policy Committee (MPC) have recommended a reduction in the growth of the money supply as a means to strengthen monetary reserves and enhance the economy’s resilience against potential future disruptions.
This recommendation comes in response to the CBN’s disclosure that currency outside the banking system had surged to N1.4 trillion in March, marking a 66% increase from February’s N843 billion. This upsurge in circulation can be attributed to the Supreme Court’s order to reintroduce the old N200, N500, and N1,000 banknotes until December 31, 2023, which has had a notable impact.
The committee also recognized the need to exercise control over the expansion of the money supply to effectively curb the inflationary pressures arising from the recent surge in currency in circulation. Restraining the growth of money supply is crucial.
Adamu Edward, a member and Deputy Governor of the Corporate Services Directorate at the CBN, expressed in the CBN’s Communique for the May MPC meeting that the growth in money supply has not been adequately restrained according to the established benchmarks for the year.
Edward stated that slowing the growth of money supply at this time would contribute to rebuilding monetary buffers and enhancing the economy’s resilience against future shocks, in addition to curbing inflation.
Furthermore, Momodu Omamegbe, a member and Head of Strategy at the Securities and Exchange Commission (SEC), emphasized the importance of prudently managing the money supply to prevent the recent increase in currency in circulation from fueling inflationary pressures.
Omamegbe highlighted the central bank’s commitment to controlling inflation, recognizing the time delays in policy transmission and the need for effective currency management strategies.
By diligently managing the money supply, the central bank can significantly contribute to achieving price stability, fostering sustainable economic growth, and safeguarding the nation’s economic prosperity.
According to the Money and Credit Statistics report released by the CBN for May 2023, there was an 8.7% month-on-month increase in currency in circulation, with the CIC reaching N2.5 trillion compared to N2.3 trillion in May, continuing the upward trend observed since March 2023 when it was recorded at N1.6 trillion.
