Nigeria’s Cash-Heavy Economy: Rising Inflation, Limited Credit, and Financial Struggles for Citizens

The Rising Tide of Cash Usage in Nigeria

In a significant shift within Nigeria’s financial landscape, the total currency in circulation soared to N5.24 trillion in January 2025, marking a staggering 43.4% year-on-year increase from N3.65 trillion in January 2024. Despite ongoing efforts by the Central Bank of Nigeria (CBN) to drive digital transactions, the surge in cash usage paints a different picture—one where physical currency remains dominant in economic activities.

A closer examination of the latest CBN data reveals that N4.74 trillion, or 90.5% of the total cash in circulation, remained outside the banking system—held by individuals and businesses rather than deposited in financial institutions. This trend raises questions about the effectiveness of Nigeria’s financial inclusion drive and the structural barriers hindering the adoption of digital banking.

The Unfolding Trend: A Year of Rising Cash Movement

Looking back at 2024, the volume of cash outside banks consistently climbed. By June 2024, Nigeria’s total cash in circulation stood at N4.05 trillion, with N3.79 trillion (93.9%) held outside banks. The figures swelled further by November 2024, reaching N4.88 trillion, of which N4.65 trillion (95.4%) remained outside formal banking channels.

While December data remains unavailable, the festive season’s typical cash-heavy transactions—covering travel, celebrations, and informal trade—likely pushed the figures even higher. Without these critical numbers, policymakers lack a complete picture of the end-of-year cash dynamics, making it harder to assess the full impact on inflation and liquidity.

Economic Implications: The Challenge for Banks and Policymakers

The dominance of cash transactions poses significant challenges for Nigeria’s banking sector and economic policymakers. With over 90% of circulating currency held outside financial institutions, banks face dwindling deposit mobilization, limiting their ability to extend credit to businesses and individuals.

This trend also weakens the CBN’s monetary policy tools. Measures such as interest rate adjustments and open market operations become less effective when cash remains largely outside the formal financial system, complicating efforts to control inflation and economic stability.

The persistent preference for cash underscores Nigeria’s slow pace of financial inclusion. While digital banking has gained traction in urban centers, millions—especially in rural and informal sectors—still rely on cash due to limited banking infrastructure and unreliable POS networks. This liquidity imbalance, if unchecked, could exacerbate inflationary pressures, especially if cash supply continues to rise without a corresponding increase in goods and services.

CBN’s Next Steps: A Balancing Act

In response to the growing concerns, CBN Governor Olayemi Cardoso announced during the 297th Monetary Policy Committee (MPC) meeting that the apex bank would sanction commercial banks failing to dispense cash through ATMs. To address liquidity challenges, the CBN also revealed plans to inject an additional N1.4 trillion into circulation over the next three months, ensuring sufficient cash availability in ATMs and bank branches.

This move reflects an effort to balance cash flow management with economic stability. However, without deeper structural reforms—such as expanding digital payment infrastructure and enhancing financial literacy—Nigeria’s cash-heavy economy may continue to challenge monetary policy effectiveness in the years ahead.

As the nation reflects on this growing cash dominance, the need for sustainable solutions to bridge the gap between physical and digital transactions has never been more urgent.

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