Money supply to fall as CBN gives directive to banks on dormant account

• The CBN recently ordered banks to release funds from accounts that have been dormant for a maximum of ten years
• It is anticipated that when DMBs dump account proceeds, the value of the money supply could drop by as much as N20 trillion
• The money supply has expanded by more than 100% since the current interest rate hike started in May 2022

Legit.ng journalist Zainab Iwayemi has over 3-year-experience covering the Economy, Technology, and Capital Market.

In the upcoming weeks, it is expected that the value of the money supply might decrease by as much as N20 trillion when deposit money banks (DMBs) offload the proceeds of accounts that the Central Bank of Nigeria (CBN) has designated as dormant and unclaimed.

Higher lending rates and less investment may eventually follow a fall in the money supply. Photo Credit: Bloomberg / Contributor
Source: Getty Images

This is as the CBN recently mandated in a new directive that banks release proceeds from dormant accounts that have been kept for up to ten years.

Money supply to fall

Under the new policy, the country's money supply, which is now valued at N99.24 trillion, might lose 20.2% of its value if regulators debit DMBs' accounts in the upcoming weeks to the amount of all such funds residing in their portfolios.

The Guardian reported that since the current interest rate hike began in May 2022, the money supply has increased by more than 100%. It was N48.9 trillion at the time.

The ability of banks to produce money through credit underwriting will be adversely constrained since savings and current account balances are close to cash, also known as high power money, which is most relevant to money creation (increasing money supply).

The monetary policy rate (MPR) has increased to 26.25 percent due to a hawkish stance that may involve more restrictive measures to further tighten lending.

A reduction in the money supply may eventually result in higher loan rates and decreased investment.

The CBN stated that the apex bank would henceforth be in charge of managing inactive accounts, unclaimed balances, and financial assets.

The assets' estimated total worth, as previously calculated by the apex bank, was N20 trillion according to a guideline was released. That caused some debate, with several participants challenging the reasoning.

“The CBN hereby issues the revised guidelines on the management of dormant accounts, unclaimed balances and other financial assets in banks and other financial institutions in Nigeria to banks and other financial institutions for implementation. This is sequel to the conclusion of the review of the Guidelines on the Management of Dormant Accounts and Other Unclaimed Funds by Banks and Other Financial Institutions in Nigeria issued in October 2015.”

In the circular signed by the Acting Director of the Financial Policy and Regulation Department of the CBN, John Onojah, CBN stated that the revised guidelines, which operationalise Section 72 of the Banks and Other Financial Institutions Act (BOFIA) 2020, followed engagements and consultations with relevant stakeholders, whose comments and recommendations were considered in the review process.

CBN gives instruction on foreign currency deposits

Legit.ng reported that the Central Bank of Nigeria (CBN) has issued new guidelines to Deposit Money Banks (DMBs) regarding the deposit of foreign currency at its branches.

This directive was contained in a circular issued by the Director of Currency Operators, Mohammed Solaja and posted on the bank’s website on Friday, June 28.

According to CBN new directive each bank can deposit up to $10 million in $100 and $50 notes daily. These deposits are to be made exclusively at the CBN branches in Abuja and Lagos.

Source: Legit.ng