By Muluken Yewondwossen
Due to an unusual decrease, the quantity of currency outside banks (COB) has set yet another record in a single fiscal year from its all-time high.
The COB, often referred to as money with the public, decreased in the fourth quarter of the previous fiscal year, which ended on June 30, 2023, as compared to the preceding quarter.
This is the second instance in the same fiscal year and the second after the demonetization of notes in 2020.
Several tools have been put in place by the government to reduce one of the world’s highest rate of inflation.
Reducing the amount of money in circulation within the economy is one of the main macroeconomic tools used by specialists to stabilize the market.
The COB stood at 254.3 billion birr, which contracted by 1.6 percent from its all-time high of the third quarter of the same fiscal year, despite increasing by 22.1 percent from the same quarter of the 2022/23 fiscal year, according to the National Bank of Ethiopia’s (NBE) most recent economic review, which evaluated the situation in the fourth quarter of the 2022/23 fiscal year.
The COB was recorded at 258.3 billion birr in the third quarter of the 2022/23 fiscal year.
According to the NBE 2022/23 1st Q assessment, the COB decreased by 2.2 percent over the specified time, standing at 169.5 billion birr, in comparison to the previous quarter, or the 4th Q of the 2021/22 fiscal year. But the second and third quarters have witnessed significant increases.
The second and third quarters’ COBs climbed by 18.6% and 9.5 percent, respectively, compared to the previous quarters, according to the NBE review. When the government began the note demonetization in the first quarter of the 2020/21 fiscal year, the COB was just 64.6 billion birr, a severe decrease of 29.3 percent from the 109 billion birr of the fourth quarter of the 2019/20 fiscal year.
To achieve 108 billion birr, or a 67.5 percent increase over the first quarter, it has, nonetheless, nearly equaled the previous peak position in the second quarter of the same fiscal year.
Mamo E. Mihretu, the governor of NBE, met with representatives of the financial industry for the first time since taking office around a year ago, he said that during the first half of the fiscal year 2022/23 that ended on December 31, 2022, COB climbed by 27 percent to reach 189 billion birr.
He went on to say that this statistic illustrates the abundance of resources available in the market for financial institutions to deploy as deposits.
In his most recent interview with the state-run media, ETV, Mamo stated that although it is assumed that currency with public will be high because the majority of the population lives in rural areas, there has been no increase over the previous five years relative to the rise in deposits.
The broad money supply, as reported by NBE, was 2.17 trillion birr at the end of the fourth quarter of 2022/23, with a 26.6 percent annual rise primarily attributable to a 26.6 percent expansion in domestic credit and a 9.2 percent increase in other items net, which countered a 43.7 percent contraction in external asset (net).
The fourth quarter of the previous fiscal year similarly saw a decrease in bank new loan disbursements.
During the review quarter 113.5 billion birr in fresh loans (including CBE’s bond purchase) were disbursed; this was a 34.5 percent or 58.6 billion birr year-over-year reduction while 172.1 billion birr was the fresh loan disbursement in the fourth quarter of the 2021/22 fiscal year.
