Porwekobowei ARUWEI, Favoured MOGBOLU
1Department of Maritime Economics and Finance, Faculty of Transport, Nigeria Maritime University, Okerenkoko, Delta State, Nigeria.
2Department of Economics, Faculty of Social Sciences, University of Benin, Edo State, Nigeria.
Porwekobowei.aruwei@nmu.edu.ng
Abstract: This research examined how financial innovations affect the demand for money and currency outside the banking system in Nigeria. Two models were estimated for the study with the measure of broad money M2 used as proxy for Money Demand and currency outside bank (COB) as the dependent variables for model 1 and model 2 respectively. Value of ATM transactions, value of Internet Banking (web), value of Mobile Money transactions and value of POS transactions were used as proxies for financial innovations and RGDP and interest rate as control variables. Data used in the study was from the period 2010Q1 to 2021Q4, which were estimated with the cointegration and ECM technique. The findings from model 1 indicated that real gross domestic product, value of ATM transactions as well as value of mobile banking transactions exert a positive impact on money demand. Deposit interest rate, value of POS transactions and value of web (internet) transactions displayed a negative impact on demand for money. For model 2, findings showed that RGDP increase currency outside the banking system, interest rate decreases it, while VATM and VMOB have a positive impact on COB, VPOS and VWEB impact negatively on COB. The study clearly proved the significant influence of financial innovations in influencing the demand for money and currency outside the banking sector in Nigeria. In light of the foregoing, the study recommends promoting the acceptability of financial innovations in payment methods, thereby providing a secure medium through continuous engagement of Nigerians who have the means to use the various financial innovations. Also, the monetary authorities should make policies that will encourage more participants in the sector through investments in critical infrastructures that ensures hitch-free service delivery of the financial innovation. Due to the mixed influence of financial innovation on the currency outside banking system, caution must be taken by the monetary authority when advocating for the use of financial innovation especially ATM and Mobile banking apps, also we can infer from the findings that transactional and precautionary motives drives the demand for currency outside the banking system.
Keywords: Financial Innovations, Demand for Money, Currency Outside Bank, ECM.