Bank of Albania “floods” the market with cash, money outside banks reaches €5.6 billion

The amount of money circulating outside the banking system reached 522.5 billion lek (€5.6 billion) in July, marking an all-time historical record.

Official data from the Bank of Albania show that the country is being flooded by an unprecedented wave of cash in the economy. In addition to the natural trend driven by the high level of informality, another factor is also contributing to this situation: the Bank of Albania’s interventions in the foreign exchange market.

The central bank’s aggressive euro-buying campaign, aimed at preventing the European currency from weakening against the lek, is abnormally increasing not only the country’s money supply but also the amount of cash circulating outside banks.

Over the past two years, the Bank of Albania has purchased nearly €2 billion, while this year’s purchases are expected to significantly exceed last year’s record. When the Bank of Albania buys euros from the market, it injects lek into the system. Through foreign currency purchase operations alone, the central bank has pumped more than 200 billion lek into the market during 2024–2025.

Historical data show that of this amount, around 80% generally remains in the banking system as deposits, while 20% is withdrawn as cash and held outside banks.

If the amount purchased during this year is also added, then more than 60 billion lek in cash outside banks is a direct result of the Bank of Albania’s policy.

As a consequence of these interventions, the country’s monetary base increased by 17.3% year-on-year, cash outside banks rose by 16%, while the M2 monetary aggregate increased by 16.7%. All of these figures represent double-digit growth rates.

The Bank of Albania has justified its aggressive euro purchases as an effort to prevent the European currency from weakening against the lek. However, these aggressive foreign currency purchases are now producing what are known as unintended effects.

First, flooding the market with lek as a result of euro purchases is undermining efforts to reduce informality. Second, the expansion of the monetary base is fueling higher prices and inflation, which is currently above the Bank of Albania’s 3% target.

“KORÇA BOOM”