New data from the Central Bank of Nigeria (CBN) has revealed a troubling trend in the country’s financial system: despite a recent drop in the overall money supply, citizens are hoarding a vast and increasing amount of physical cash. According to the CBN’s latest money and credit statistics for September 2025, Nigerians held a staggering ₦4.47 trillion in physical cash outside the formal banking system.
This figure is particularly striking when contrasted with the overall money figures. The broad money supply, known as M3, contracted in September, falling by ₦1.91 trillion month-on-month to ₦117.78 trillion. However, rather than flowing into bank deposits, cash held outside the vaults rose marginally by 0.3 per cent during the same period. More worryingly, when assessed on a yearly basis, the amount of cash hoarded outside banks grew by a massive 11.2 per cent, outstripping the 7.6 per cent growth seen in the overall money supply over the year. This widening gap confirms a persistent and growing preference among Nigerians for holding physical currency instead of using regulated accounts.
The extent of this issue is best highlighted by the proportion of currency involved. Total currency in circulation, which is the cash issued by the CBN and available to the public, stood at ₦4.95 trillion in September 2025. Of this total, the ₦4.47 trillion held outside the banking system accounts for over 90 per cent. This means that only about one-tenth of the total cash stock is actually retained within the commercial bank vaults, where it can be properly tracked and utilised. This high ratio has remained stubbornly unchanged in recent months, underlining a deep-seated structural issue within the financial landscape.
This persistent reliance on physical currency reflects several fundamental weaknesses in the Nigerian financial system. Cash hoarding is typically driven by a number of factors, including a lingering distrust in the formal banking sector, especially in rural areas, coupled with high transaction costs associated with using banks. Furthermore, despite rapid growth in fintech, the penetration of digital platforms remains uneven, and a huge chunk of economic activity continues to be dominated by the cash-dependent, informal economy.
The high volume of cash outside the system poses a serious challenge to the Central Bank’s ability to manage the economy effectively. The presence of so much ‘unbanked’ currency weakens the transmission mechanism of monetary policy. For instance, when the CBN adjusts interest rates, as it recently did by cutting the Monetary Policy Rate (MPR) for the first time in five years, the impact of that adjustment is severely diluted when over 90 per cent of the cash in circulation is not passing through the formal financial system. This lack of control makes the fight against inflation and efforts to manage liquidity far less effective.
Moreover, the prevalence of cash hoarding fuels the informal economy, making it extremely difficult for the government to accurately measure the nation’s total economic output and, crucially, constraining tax collection efforts. In effect, the data suggests that while the Central Bank is attempting to tighten monetary control through measures like high Cash Reserve Requirements for commercial banks, the behavioural and structural preferences of households and businesses for physical cash are currently overriding the government’s best efforts to steer the formal economy.
