Critical Assessment of Liquidity Management and Cryptocurrency in Nigeria: An ARDL Analysis

Onah Anthony Onah and Umeokwobi Richard Onyekachi
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Onah Anthony Onah: Monetary Policy Department, Central Bank of Nigeria, Abuja, Nigeria.
Umeokwobi Richard Onyekachi: Monetary Policy Department, Central Bank of Nigeria, Abuja, Nigeria.

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Abstract: Due to the global debate on the acceptability of the emerging currency called the crypto, economists all over the world have been faced with the dilemma of rejecting or accepting the cryptocurrency. Nigeria as a developing economy is also faced with this dilemma because, some financial transactions in Nigeria are now done using the cryptocurrency and this in turn has caused some disequilibrium in the capturing and management of liquidity by the monetary authority in the economy. Based on the underlying issues, this paper seeks to investigate liquidity management and cryptocurrency in Nigeria using the vector autoregressive lag model (ARDL). The variables employed in the model were bitcoin which was used as a proxy for a cryptocurrency, while interbank rate (IBR), monetary policy rate (MPR), open buyback (OBB), and maximum lending rate (MLR) were used as proxy for liquidity management, respectively. This study covers the period January 2017 to June 2021. The result of the bounds test of the autoregressive distributive lag model reveals that there is a long run co-integration among the variables. The long-run autoregressive distributive lag model also shows that only maximum lending rate has a significant impact on bitcoin, though negative. The post estimation test demonstrates that the model is significant and robustly fit. Based on the findings, policy recommendations suggest that the monetary authority in Nigeria should maintain its regulatory stance against accepting cryptocurrency as a legal tender and be more proactive in controlling the activities of shadow organisations that are engaged in the business of converting cryptocurrencies to naira and vice versa.

Date: 2022-08-18
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Published in Asian Journal of Economics, Finance and Management , 2022, 4 (1), pp.404-415

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