Benin’s Money Supply Contracts by 2.9% as Fiat Currency Falls Sharply. The Central Bank of West African States (BCEAO) has reported a significant contraction in Benin’s M2 money supply at the end of May 2024. The overall money supply decreased by 2.9% compared to May 2023, with the volume of physical currency falling by 6.8% – from 840.1 billion FCFA last year to 783 billion FCFA this year.
The decline in fiat currency, which represents a reduction of over 57 billion FCFA, has been identified as a key factor behind the overall monetary contraction. In addition to the decrease in circulating cash, transferable deposits—a critical component of the money supply—experienced a modest decline of 1.9%. This trend, analysts warn, could signal growing caution among economic agents amid an uncertain monetary and economic landscape.
Further compounding the situation, external assets held by monetary institutions have dropped by 10.3%, falling from 1,837 billion FCFA to 1,647.8 billion FCFA. While domestic credit claims have shown some resilience—with an increase of 15.6% in deposits from local institutions—the contraction in overall liquidity poses challenges for market fluidity and business operations.
Economic observers suggest that a persistent decline in the money supply could lead to reduced market liquidity, complicating business transactions and potentially slowing economic growth. Policy makers are now being urged to monitor these developments closely and to consider measures that bolster confidence and encourage investment.
With some positive signs emerging in domestic credit markets, Benin still has an opportunity to stabilize its financial situation. However, sustained efforts to strengthen market confidence and implement proactive monetary policies will be essential for ensuring long-term economic stability.
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