Nigeria’s cash-based economy tightened its grip in 2025, with new Central Bank of Nigeria (CBN) data showing that the overwhelming majority of physical currency continued to circulate outside the formal banking system.
Beyond structural informality and lingering trust issues, the trend is increasingly being linked to anxiety around the country’s controversial new tax law and its enforcement provisions, which many Nigerians see as punitive.
CBN money and credit statistics for November 2025 show that currency outside banks stood at N4.91 trillion, out of a total N5.26 trillion in circulation. That means roughly 93.35% of all physical cash in the country was held outside the banking sector, leaving barely 6.65% within banks. This marks one of the highest ratios recorded in the year and reinforces a pattern that has now persisted for almost two years.
The scale of the imbalance is striking. In October 2025, N4.65 trillion out of N5.06 trillion in circulation sat outside banks, equivalent to 91.87%. The further rise in November points to an accelerating preference for cash holdings as the year drew to a close, rather than a seasonal blip.
Across the full year, the data paints a consistent picture. January 2025 opened with N4.74 trillion outside banks out of N5.24 trillion in circulation, or about 90.49%. February dipped slightly to 89.62%, before March jumped to 91.91%. April and May remained above 91%, with May reaching 92.39%. Although June and July eased marginally to just under 90%, the ratio climbed again from August through November, staying above 92% for much of that period.
In simple terms, Nigeria has spent most of 2025 with more than nine out of every ten naira notes circulating entirely outside the formal banking ecosystem.
Total currency in circulation also rose steadily. At N5.26 trillion in November, it reached its highest level of the year, up from N5.01 trillion in May and N5.23 trillion in January. On a year-on-year basis, currency in circulation expanded from N4.88 trillion in November 2024, meaning roughly N383.7 billion in additional cash was injected into the economy over twelve months.
Yet this increase did not translate into stronger bank deposits. The share of currency retained within banks stayed trapped in a narrow 6–10% range throughout the year. In effect, newly issued cash largely flowed straight into the informal economy, bypassing deposit mobilization.
The reserve data adds another layer to the story. Bank reserves stood at N30.94 trillion in November 2025, slightly lower than October’s N31.58 trillion but well above the N27.43 trillion recorded in January. Reserves peaked at N34.67 trillion in September before easing back. Year-on-year, reserves jumped from N25.99 trillion in November 2024 to nearly N31 trillion a year later, an increase of almost N5 trillion.
This divergence is telling. While currency in circulation grew by less than N400 billion year-on-year, bank reserves rose by about N5 trillion. The implication is that liquidity tightening measures mopped up bank funds aggressively, pushing financial institutions to lock more money with the CBN rather than deploy it as credit. This environment raises funding costs and intensifies credit pricing pressures, even as businesses already struggle with high borrowing rates.
At the same time, the informal economy absorbed most new cash issuance. Physical naira continued to circulate through retail trade, transport, household consumption, and small-scale enterprises, with little recycling back into the banking system.
What makes the 2025 trend more politically and socially sensitive is the growing belief that recent tax policy changes are accelerating the shift away from banks. The new tax law, which came into force amid strong public debate, expanded enforcement powers for revenue authorities. Among its most controversial elements is the alleged authority of the Nigerian Revenue Service (NRS) to place liens on, or directly debit, bank accounts suspected of tax non-compliance.
While officials have sought to reassure the public that safeguards exist, the perception on the street has been harder to manage. For many small business owners, traders, and self-employed Nigerians, bank accounts are now seen not only as financial tools but also as potential exposure points to aggressive tax enforcement. In response, cash holding has become a form of self-protection.
This fear-driven behavior appears to be compounding long-standing mistrust rooted in past policy shocks, including sudden regulatory changes and enforcement actions. Instead of deepening financial inclusion, the tax law has coincided with a period in which people are actively distancing themselves from banks, preferring to transact and store value in cash.
The macroeconomic consequences are significant. When such a large share of money circulates outside banks, the effectiveness of monetary policy weakens. Interest rate adjustments, liquidity controls, and other tools largely operate through the banking system. Cash-dominant actors in the informal economy remain largely untouched by these signals, even as formal-sector borrowers face tighter conditions.
There are fiscal implications as well. A system where most transactions never touch bank accounts complicates tax administration and widens information gaps. Ironically, fears of enforcement may be driving behavior that makes revenue collection harder, not easier.
As 2026 begins, the message from the data is that Nigeria’s economy is still running heavily on cash, and policy actions meant to strengthen control and compliance may be reinforcing that reality. Until trust in institutions improves and enforcement is seen as predictable rather than punitive, physical cash is likely to remain the safest option for millions of Nigerians, far removed from the balance sheets where monetary policy is meant to bite.
