Does Currency in Circulation Promote Economic Performance in Developing Countries? Evidence from Nigeria

Fadiya Bamidele Banuso

Abstract


Empirical studies on currency in circulation have been the object of great attention by economists in the
developing countries due to its vital role in achieving effective electronic payment system by the monetary
authorities. In this disquisition, analysis were carried out to examine whether currency in circulation (CIC)
promotes economic performance, using Vector Autoregression Model (VARM) and VAR Granger Causality
Test, annual data of all variables for the period 1960–2011 were employed. According to the results, the
coefficient of currency in circulation when lagged by one period is positive but statistically insignificant at 5%
contrary to expectations. The statistically insignificant relationship that exists between the monetary instruments
such as; exchange rate, inflation rate, normal interest rate, high power money, currency in circulation, demand
deposit and normal GDP sheds more light on how ineffective monetary policies adopted by the Central Bank of
Nigeria (CBN) for promoting economic growth. This findings brings to the fore that the cashless economy been
proposed by the CBN will have a significant impact on the performance of Nigeria economy. The government
should provide adequate infrastructure and all enabling legal framework that will help the informal sector of the
economy to embrace the cashless payment system, so as not to erode the diminutive contribution of the informal
sector to GDP in Nigeria. The study also revealed that demand deposit granger causes economic growth so CBN
should increase the deposit rate which will serve as incentive and enforce the existing financial regulations that
will protect depositors.

Full Text: PDF DOI: 10.5539/ibr.v6n10p91

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