Money supply drops to N64.8 trillion in August

Naira gains ground, trades at N1,025/$ in parallel market
Naira gains ground, trades at N1,025/$ in parallel market

Nigeria’s money supply, as measured by M2, experienced a marginal decline to N64.8 trillion in August 2023, down slightly from N64.9 trillion in July of the same year.

This data, sourced from the Central Bank of Nigeria’s money and credit statistics, reveals the total amount of money circulating within the economy at a specific point in time.

M2 encompasses various forms of money, including physical currency such as coins and banknotes, as well as deposits held by individuals, businesses, and institutions in banks and other financial institutions.

It plays a critical role in assessing interest rates and potential inflation within a given period.

This recent fluctuation in Nigeria’s money supply aligns with several economic challenges, including rising inflation, exchange rate pressure, and decreasing interest rates.

As the money supply expands, the risk of inflation increases, potentially eroding purchasing power.

Moreover, a larger money supply can lead to reduced interest rates, particularly when investment opportunities are limited.

This situation may make Nigerian assets less appealing to foreign investors, a concern given the country’s reliance on dollar imports.

Key Highlights of the Data:

  1. M2 Breakdown: A detailed analysis of the data reveals fluctuations in specific components of the money supply, including demand deposits, quasi-money, and currency held outside of banks. Quasi-money, referring to easily convertible financial instruments, surged from N101.1 billion to N40.8 billion in August 2023. Conversely, demand deposits, primarily composed of checking accounts or funds available in banks without prior notice, decreased by N221.1 billion to N21.7 trillion. Currency held outside of banks witnessed a more modest increase, rising by N86 billion to N2.29 trillion.
  2. Other Data: In addition to M2 components, another money supply metric known as M3 declined by N20.9 billion to N65.4 trillion. Net foreign assets continued their decline, reaching N7.1 trillion in August, down from N9.2 trillion the previous month. Notably, credit to the government expanded from N32.3 trillion to N32.5 trillion, and net domestic credit increased from N86.4 trillion to N87.2 trillion. These figures provide valuable insights into the dynamics of Nigeria’s monetary system and its broader economic implications.