The Central Bank of Nigeria (CBN) has revealed that Nigeria’s total money supply (M2) dropped to N71.33 trillion in November 2023 amid scarcity of local currency.
This represents a 1.83 percent or N1.33 trillion drop from N72.66 trillion reported in October 2023.
According to CBN’s “Money and Credit Statistics” M2 which opened in 2023 at N52.84 trillion, the total money supply moved to N71.33 trillion in November.
The money supply, identified as M2, captures the total amount of money available in the economy at a particular moment.
This includes physical currency such as coins and banknotes, in addition to various types of deposits maintained by individuals, enterprises, and institutions in banks and other financial entities.
When M2 hit N72.66 trillion in October, analysts stated that the recent surge in Nigeria’s money supply aligns with challenges like escalating inflation rate, pressure on the exchange rate, and diminishing interest rates.
As the money supply grows, there’s a rising chance of inflation, leading to decreased purchasing power.
Additionally, a larger money supply might result in declining interest rates, especially when investment assets are in short supply.
This could potentially make Nigerian assets less enticing to overseas investors, a concern given Nigeria’s dependence on dollar imports.
The former President and Chairman of the Council of Chartered Institute of Bankers of Nigeria (CIBN), Prof. Segun Ajibola had explained that the unification of the local currency aided the increase in M2.
According to him, “One thing is clear that if there is a deprecation in the value of a currency and part of the supply is foreign currency, by the time we monetize foreign currency to local currency, the figure is expected to increase.
“As the portion that is going into federation accounts by way of the dollar when converted to the current foreign exchange rate, the figure is expected to increase compared to the previous month when the Naira/Dollar rate was around N461.1/$ official rate of CBN.
“As we all know, a sizable portion of government revenue comes from oil exports and that is a big component that goes into the federation account.”
The CBN under Yemi Cardoso’s administration, M2 has recorded a steady increase from N66.17 trillion in September 2023 to N72.66 trillion in October, eventually closing November 2023 at N71.33 trillion.
Nigeria’s money supply has been on the rise since the central bank began its expansive monetary policy stand in the wake of the COVID-19 pandemic and rising inflation rate.
Since September 2020, Nigeria’s money supply has doubled from N29 trillion before the lockdown (February 28th). However, the rise has been rapid in the last 12-18 months rising by about 34.6 per cent year-on-year.
The increase in money supply was also a result of the devaluation of the naira following forex unification in June, The policy effectively added close to N10 trillion to the money supply.
A closer look at the data reveals that certain components of the money supply, namely demand deposits, quasi-money, and currency outside banks, also witnessed growth and declines.
Specifically, quasi-money, which pertains to financial tools that can be easily converted to cash, surged from N46.23 trillion in October 2023 to N45.15 trillion in November 2023.
Moreover, demand deposits, primarily made up of chequing accounts or funds in banks accessible without prior notice, moved from N23.7 trillion to N23.1 trillion in November 2023.
Meanwhile, currency outside banks observed a relatively modest increment from N2.7 trillion to N3.08 trillion in November 2023.
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