Examining the Response of Currency Outside the Banking System to the Rise in E-Payment Systems in Nigeria

Innocent Chile Nzeh, Hycenth Richard Oguejiofoalu Ogwuru, Ifeoma Sandralyn Obiukwu, Irene Olanma Onwuemeka and Kelechi Chibueze Abamara
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Innocent Chile Nzeh: Department of Cooperative and Rural Development, University of Agriculture and Environmental Sciences, Imo State, Nigeria
Hycenth Richard Oguejiofoalu Ogwuru: Department of Economics, Novena University, Delta State, Nigeria
Ifeoma Sandralyn Obiukwu: Department of Economics, Alvan Ikoku Federal University of Education, Imo state, Nigeria
Irene Olanma Onwuemeka: Department of Economics, Renaissance University, Enugu State, Nigeria
Kelechi Chibueze Abamara: Department of Economics, Nnamdi Azikiwe University, Anambra State, Nigeria

Review of Economic Assessment, 2024, vol. 3, issue 3, 27-44

Abstract: This study investigated the response of currency outside the banking system to the rise in the use of the e-payment outlets in Nigeria. The study is motivated by the recent rise in the use of e-payment systems and their likely tendency to reduce the currency outside the banking system. Using monthly series over the period from 2012M12 to 2022M12, the study applied the VAR model. The study found that currency outside the banking system responded negatively to shocks in the three e-payment channels included in the study, even though such responses were short-lived. The study equally revealed that while bank reserves responded positively to shocks in e-bills payment only in period one, its response to shocks in both NIP and POS was positive up to periods six and eight, respectively. These outcomes found support in the results of the variance decomposition. On grounds of the findings, the study concludes that the e-payment system led to a reduction in the currency outside the banking system with the likely implication of causing much liquidity in the banking system. It is the view of the study that the monetary authorities should encourage the use of the e-payment systems in order to reduce the currency outside the banking system, but should monitor the various e-payment channels to avoid financial instability.

Keywords: E-payment; Bank reserves; Currency outside the banking system; Financial instability; VAR model (search for similar items in EconPapers)
Date: 2024
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