The money supply in Nigeria, known as M2, has reached an unprecedented N64.36 trillion, surging by 31.62% year-on-year in June 2023. This growth is primarily attributed to increased proceeds from the Federation Account Allocation Committee (FAAC) to the three tiers of government.
The M2 includes quasi-money, currency outside banks, and demand deposits, all of which have shown consistent upward trends. Quasi-money assets rose by 24.87% YtD, currency outside banks increased by 185.67% YtD, and demand deposits saw a remarkable 11% YtD increase.
The significant increase in naira notes being hoarded by the public outside commercial banks’ vaults indicates a persistent trend of cash hoarding. Analysts believe federal government spending has contributed to the rise in M2.
Despite the challenges faced in the first quarter of 2023, including political tensions, naira scarcity, and fuel shortages, credit to the private sector in Nigeria has reached an all-time high of N52.81 trillion, gaining 27.13% YtD from January to June 2023.
Opinion: The surge in Nigeria’s money supply raises concerns about the potential impact on inflation and overall economic stability. While increased government spending can stimulate economic growth, it also poses the risk of inflationary pressures if not well managed. The Central Bank of Nigeria should carefully monitor the situation and implement appropriate monetary policies to ensure a balanced and sustainable economic recovery.