CBN Issues N2.4 Trillion Banknotes in Six Months Amid Cash Crunch

The Central Bank of Nigeria (CBN) has issued N2.4 trillion worth of new banknotes in the first half of 2023, as the country faces a severe cash crunch that has pushed up interest rates and borrowing costs for banks and businesses.

According to the CBN’s data, the currency in circulation increased by 19.6 per cent from N12.2 trillion in December 2022 to N14.6 trillion in June 2023, indicating a high demand for cash by the public and the private sector.

The CBN’s currency management policy, which aims to redesign N1,000, N500 and N200 notes and phase out the old ones by January 31, 2023, has also contributed to the surge in currency issuance, as banks and customers rush to exchange their old notes for new ones.

However, the availability of new notes has been hampered by poor logistics, sabotage by some bank staff, and the diversion of new notes to the black market, where they are sold at a premium to vendors and politicians.

The scarcity of new notes has led to long queues at bank branches and ATMs, as well as complaints by customers who deposit old notes but receive old notes in return.

The CBN has insisted that there is no going back on the expiration of old notes on January 31, 2023, and has urged banks to comply with its directives and ensure adequate supply of new notes to their customers.

The CBN has also warned that anyone caught hoarding or selling new notes will face severe sanctions, including prosecution.

The cash crunch in the economy has been exacerbated by the low inflow of foreign exchange, the high inflation rate, the security challenges, and the impact of the COVID-19 pandemic on economic activities.

The CBN has been intervening in the forex market to stabilise the exchange rate and support the naira, but the demand for dollars has remained high, especially from importers and investors.

The CBN has also been implementing various monetary policy measures to curb inflation and stimulate growth, such as lowering the benchmark interest rate, increasing the cash reserve ratio, and conducting open market operations.

However, these measures have not been enough to ease the liquidity squeeze in the interbank money market, where banks lend and borrow funds among themselves.

The interbank market has witnessed a sharp rise in interest rates and borrowing costs, as banks face a shortage of funds to meet their obligations and regulatory requirements.

The CBN’s data shows that banks’ borrowing from the CBN through its Standing Lending Facility (SLF) rose by 174 per cent to N2.48 trillion in April 2023 from N904.6 billion in March 2023.

The SLF is a window where banks can access funds from the CBN at a higher interest rate than the benchmark rate, usually as a last resort.

The data also shows that banks’ deposits with the CBN through its Standing Deposit Facility (SDF) fell by 57 per cent to N169.74 billion in April 2023 from N392.37 billion in March 2023.

The SDF is a window where banks can park their excess funds with the CBN at a lower interest rate than the benchmark rate, usually when there is excess liquidity in the market.

The decline in the SDF indicates that banks have less idle cash to deposit with the CBN, and are instead using their funds to meet their liquidity needs.

The high cost of funds in the interbank market has also affected the lending rates and credit conditions for businesses and households, who are facing difficulties in accessing loans or refinancing their debts.

The CBN has expressed concern over the rising trend of non-performing loans in the banking sector, which stood at 6.3 per cent as of March 2023, above the regulatory threshold of 5 per cent.

The CBN has urged banks to exercise caution in their lending practices and ensure that they have adequate capital and risk management frameworks to absorb any shocks.

The CBN has also encouraged banks to increase their lending to the real sector, especially the agriculture and manufacturing sectors, which are key drivers of growth and employment.

The CBN has introduced various intervention schemes and incentives to support these sectors, such as the Anchor Borrowers’ Programme, the Agri-Business/Small and Medium Enterprise Investment Scheme, and the Targeted Credit Facility.

The CBN has also launched the Naira 4 Dollar Scheme, which offers an incentive of N5 for every $1 remitted through licensed money transfer operators, to boost the inflow of diaspora remittances and increase the supply of foreign exchange.

The CBN has assured the public that it will continue to monitor the developments in the economy and take appropriate actions to safeguard the stability of the financial system and the value of the naira.