Monetary Policy Implications of Electronic Money Adoption: Evidence from Nigeria

Abstract

This study investigates the monetary policy implications of electronic money adoption in Nigeria; that is, whether the electronic money adoption that began since the introduction of the cashless policy in Nigeria has disrupted the long-run stability of demand for money function. The findings reveal substantial growth in the Nigerian financial sector concerning the development and usage of electronic money, encompassing the expansion of banks and bank branches, Automated Teller Machines, mobile payments, Point-of-sale systems, web payments, and transaction volumes and values. Results from the study obtained through the Autoregressive Distributed Lag model (ARDL) show a substantial likelihood of an unstable and unpredictable demand function over time, potentially undermining the long-term effectiveness of monetary policy. The study underscores that electronic money transactions exert linear and non-linear effects on money demand and the velocity of money in circulation exhibits some form of instability during the study period. Consequently, the monetary authority should remain vigilant in monitoring evolving payment patterns and trends to discern the shifting dynamics of cash demand. A grasp of emerging payment technologies and transaction patterns will empower policymakers to proactively adjust monetary policies and regulatory frameworks, aligning them with the requirements of a digital economy. This approach ensures a balanced interplay with the demand for cash, which is essential for transactional activities within the economy. JEL: G21, E41, E52, C22, N17