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- Title
Extending the determinants of currency substitution in Nigeria: Any role for financial innovation?
- Authors
Ujunwa, Angela Ifeanyi; Ujunwa, Augustine; Onah, Emmanuel; Nwonye, Nnenna Georgina; Chukwunwike, Onyedikachi David
- Abstract
Existing literature suggests that macroeconomic and institutional factors are the drivers of currency substitution. The persistent and significant incidence of currency substitution during the period of mixed performance of macroeconomic variables suggests the existence of a knowledge gap on the drivers of currency substitution during the era of rapid technological innovation. To contribute to this literature, we augmented the traditional money demand model of the determinants of currency substitution to introduce financial innovation. We use Nigerian data from 2005Q1 to 2019Q4 and Pesaran et al. (2001, https://doi.org/10.1002/jae.616) autoregressive distributed lag (ARDL) bound test approach to cointegration to estimate the models. The results confirm the presence of short‐run and long‐run relationships between financial technology and currency substitution in Nigeria. In effect, the deployment of financial technology in developing payment system infrastructure creates additional incentives for economic agents to hold foreign currency deposit. Economic managers must, therefore, mainstream credible monetary and fiscal policies to moderate the effect of financial innovation on currency substitution.
- Subjects
NIGERIA; MONETARY incentives; NATIONAL currencies; HARD currencies; DEMAND for money; FINANCIAL technology; SUBSTITUTION (Technology); FISCAL policy; ABSORPTIVE capacity (Economics)
- Publication
South African Journal of Economics, 2021, Vol 89, Issue 4, p590
- ISSN
0038-2280
- Publication type
Article
- DOI
10.1111/saje.12300