By Sunday Michael Ogwu
Nigeria is witnessing a sustained and troubling return to cash dominance, with recent data from the Central Bank of Nigeria (CBN) revealing that currency outside the banking system hit ₦4.63 trillion in May 2025, continuing a steady rise that has defined the past two years.
The data shows that currency in circulation reached ₦5.01 trillion in May 2025, of which over 92 per cent was held outside the banking system—in people’s homes, markets, and businesses.
This represents a significant reversal of earlier policy efforts aimed at promoting financial inclusion and reducing the dominance of physical cash in the economy.
Just two years ago, in March 2023, currency outside banks stood at ₦1.45 trillion—barely 57 per cent of the total currency in circulation at the time.
READ ALSO: Cardoso Hails Afreximbank $40bn Feat, Urges African Unity
The sharp rise since then reflects the failure of cashless policy measures, growing distrust in digital payment systems, and rising costs of financial transactions for everyday Nigerians.
Experts say this growing reliance on physical cash weakens the effectiveness of monetary policy tools, limits credit availability, and entrenches the informal economy.
“When too much money is outside the banking system, it becomes difficult for the central bank to manage inflation and interest rates effectively,” said a Lagos-based financial analyst. “It also reduces banks’ ability to lend, which slows down investment and job creation.”
The increase in physical cash holdings also fuels concerns around illicit financial flows, as unbanked money is harder to track.
This could encourage tax evasion, corruption, and money laundering, further straining government revenues and transparency efforts.
Following the controversial 2023 Naira redesign policy, currency outside banks fell drastically to under ₦1 trillion.
However, the policy’s suspension and subsequent political backlash allowed cash to flow back into the economy unchecked.
By December 2023, currency outside banks had surged to ₦3.43 trillion, and it has continued climbing every month since.
High transaction fees discourage use of digital platforms
Stakeholders say that while Nigeria has made gains in expanding digital infrastructure and mobile banking, gaps remain—especially in rural and low-income communities where cash is still king.
High transaction fees, unreliable internet connectivity, and limited banking access discourage many Nigerians from using digital platforms.
To address this challenge, analysts suggest a combination of reforms: reducing transaction costs, investing in mobile financial infrastructure, building public trust in digital payments, and enforcing stricter limits on large cash transactions.
Ultimately, the rising currency outside banks is more than a statistic—it’s a signal of deeper economic anxieties. Rebuilding confidence in the formal financial system and strengthening inclusive banking policies will be essential to reversing the trend.
Sunday Michael Ogwu is a Nigerian journalist and editor of Pinnacle Daily. He is known for his work in business and economic reporting. He has held editorial roles in prominent Nigerian media outlets, where he has focused on economic policy, financial markets, and developmental issues affecting Nigeria and Africa more broadly.