Cash outside banks surges by N181.7bn in one month

Cash held outside the banking sector rose sharply in October 2025, climbing to N4.646tn from N4.465tn in September, according to new money and credit statistics released by the Central Bank of Nigeria.

The increase of N181.71bn marks one of the strongest monthly expansions recorded this year and highlights growing reliance on physical cash across the economy despite ongoing monetary tightening.

The latest figure also reflects a reversal from September, when currency outside banks had fallen slightly from N4.450tn in August to N4.465tn in September. The October rebound suggests rising withdrawal pressures driven by higher consumer spending and deepening informal-sector activity.

Currency in circulation, which represents the total cash issued into the economy by the apex bank, also rose from N4.952tn in September to N5.058tn in October. With N4.646tn of that amount held outside banks, it means 91.9 per cent of all physical cash in circulation is outside the formal banking system, leaving just 8.1 per cent within banks.

This high ratio presents a significant challenge for monetary policy transmission. Bank reserves dropped from N34.67tn in September to N31.58tn in October, signalling tighter system liquidity as banks lost cash to withdrawals.

The combination of falling reserves and expanding out-of-bank cash holdings suggests a shift in liquidity distribution away from the formal system towards households and businesses.

An examination of 2025 trends shows that currency outside banks has oscillated throughout the year but remained persistently high. In January, it stood at N4.737tn before falling to N4.516tn in February. It then rose steadily to N4.598tn in March and N4.568tn in April, reaching N4.633tn in May.

A dip to N4.493tn occurred in June, followed by a slight decline to N4.450tn in August. The stronger rise in October marks a return to an upward trend. The behaviour of currency in circulation mirrors this pattern. It was N5.235tn in January before falling to N5.037tn in February, rising again to N5.003tn in March and N5.014tn in April.

It then grew to N5.015tn in May, dipped slightly in August to N4.922tn, and rose again in September and October. The October figure of N5.058tn is close to the year’s highest and reflects a broader rise in currency supply.

The ratio of currency outside banks to total circulation has stayed above 89 per cent throughout the year, underlining the structural challenge of Nigeria’s cash-heavy economy.

The growing preference for physical cash raises several macroeconomic concerns. High out-of-bank cash weakens monetary control, reduces deposit mobilisation, creates liquidity constraints for banks and encourages informal transactions that escape regulatory visibility.

It also complicates inflation targeting, as large cash volumes outside the banking system blunt policy effectiveness. The sharp rise in currency outside banks comes at a time when the CBN is focused on tightening liquidity to curb inflation, with the Monetary Policy Committee adjusting policy parameters in its September meetings.

The jump followed the Monetary Policy Committee’s decision in September to cut the Monetary Policy Rate by 50 basis points to 27 per cent, the first reduction since 2020. The easing came as inflation began to moderate and foreign exchange conditions improved.

However, at its November meeting, the MPC left the benchmark rate unchanged at 27 per cent and adjusted the policy corridor to prevent banks from warehousing liquidity at the apex bank, signalling a cautious approach to balancing easing with inflation control.

CBN Governor, Olayemi Cardoso, announced the decision at the end of the committee’s 303rd meeting, where all twelve members were present. Cardoso said the MPC voted by a majority “to maintain the monetary policy stance,” adding that members were convinced that the economy required more time for earlier decisions to filter through.

The committee also adjusted the corridor around the benchmark rate to +50/-450 basis points and retained the Cash Reserve Ratio at 45 per cent for deposit money banks, 16 per cent for merchant banks, and 75 per cent for non-TSA public-sector deposits.

The liquidity ratio was kept unchanged at 30 per cent. According to the communiqué, the stance was underpinned by the need “to sustain the progress made so far towards achieving low and stable inflation,” adding that future policy choices would remain “evidence-based and data-driven.”

The CBN said inflation had decelerated for seven consecutive months, falling from 34 per cent a year ago to 16.05 per cent in October. Food inflation slowed to 13.12 per cent from 16.87 per cent, while core inflation moderated to 18.69 per cent.

The bank attributed the decline to sustained monetary tightening, improved FX market stability, higher capital inflows, and relative calm in fuel prices.

At the press briefing, Cardoso argued that price stability was only the first step. “The issue of macro stability and the gains of macro stability, to my mind, is the core of the matter,” he said.

“To the extent that we have accomplished stability, stability is a very fundamental process in the road to growth,” he added.