The total value of currency outside Nigeria’s banking system rose to N4.6 trillion in March 2025, accounting for 91.9% of the N5.00 trillion in total currency in circulation during the period.
This is according to the latest money and credit statistics released by the Central Bank of Nigeria (CBN), highlighting the country’s sustained dependence on physical cash despite the government’s cashless policy push.
This marks a significant increase compared to the same period in 2024, when N3.63 trillion was held outside banks out of N3.87 trillion in circulation.
The new figures represent a 26.7% year-on-year increase in currency held outside banks and a 29.3% rise in total currency in circulation.
Cash dominance persists despite monetary tightening
- The March data highlights a persistent trend: Nigerians continue to favour physical cash over banking channels. Between February and March 2025, currency outside banks rose slightly from N4.52 trillion to N4.60 trillion, even as total currency in circulation dipped marginally from N5.04 trillion to N5.00 trillion. The proportion of currency outside the banking system consequently climbed to 91.9%, the highest level in five months.
- This trend has remained relatively consistent throughout the first quarter of the year: In January 2025, the figure stood at N4.74 trillion, which made up 90.5% of the N5.24 trillion in circulation. February saw a brief dip in the proportion to 89.6%, before rising again in March. The continued dominance of cash suggests deep-rooted behavioural and structural reliance on currency for transactions, particularly within the informal economy.
Inflation likely driving liquidity preferences
The increased circulation of physical cash coincides with rising inflationary pressure. According to the National Bureau of Statistics (NBS), headline inflation rose to 24.23% in March, up from 23.18% in February 2025. On a month-on-month basis, inflation surged by 3.90%—nearly double February’s rate of 2.04%—signalling an accelerated rise in consumer prices.
In an inflationary environment, more Nigerians tend to keep cash in hand to meet immediate needs, especially where price volatility is high and access to banking infrastructure is unreliable. This is particularly evident in rural and peri-urban areas, as well as among informal businesses, traders, and low-income households that transact largely in cash.
Nigeria’s informal economy—estimated to contribute over 50% of GDP—relies heavily on physical cash. Limited digital literacy, poor network infrastructure, and lack of trust in banking platforms contribute to the continued preference for cash. Many consumers still perceive bank transfers as unreliable, citing delays, failed reversals, and ATM downtimes as daily frustrations.
Despite fintech growth and policy support for electronic payments, physical currency remains deeply embedded in the economic and cultural fabric of Nigerian society. Without significant progress in building trust, expanding infrastructure, and financial education, the push toward a cashless economy may remain elusive.
CBN faces liquidity management hurdles ahead of May MPC meeting
The high volume of unbanked currency presents a growing challenge for monetary policy implementation.
- When most of the nation’s physical cash remains outside formal banking channels, the effectiveness of traditional liquidity management tools, such as interest rate adjustments and open market operations, is significantly weakened.
- The Central Bank’s Monetary Policy Committee (MPC), which is scheduled to meet on May 19 and 20, 2025, will have to grapple with this issue.
- The committee had opted to hold rates at its last meeting in February, but with inflation accelerating and currency outside banks at record levels, analysts expect a more hawkish stance in May.
Sterilising excess liquidity through conventional means may not be sufficient if the bulk of currency remains outside the financial system. This could force the apex bank to consider more aggressive measures to mop up liquidity or reintroduce controls to push more cash into the banking sector.
