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Analysis of cashless economy, demand for money and price determination: A possibility for implementation in Nigeria

Paul Ekpeyong

MPRA Paper from University Library of Munich, Germany

Abstract: This study explores the feasibility of implementing a cashless policy in Nigeria and its impact on money demand and price determination. Drawing from renowned scholars such as Keynes, Friedman, and Woodford, the analysis delves into the dynamics of monetary policy, the role of money in trade and financial markets, and factors influencing price levels. The study investigates the relationship between money demand and the implementation of a cashless policy. It emphasizes the behavior of real balances, transaction velocity, and the effects of monetary policy on trading activity and asset prices. The findings indicate that as an economy moves towards a cashless system, various factors come into play. Transaction velocity, a measure of cash efficiency, becomes critical, increasing as cash usage diminishes and the economy becomes more cashless. Additionally, the study reveals that implementing a cashless policy affects price determination. Contrary to conventional belief, even as real balances approach zero in a cashless economy, asset prices remain responsive to monetary policy. This implies that monetary equilibrium prices do not necessarily converge to their nonmonetary equilibrium counterparts when real balances vanish. Based on these findings, a viable policy recommendation emerges: the monetary authority should carefully manage the money supply per investor to control and stabilize the price level in a cashless economy. Adjusting the money supply allows the authority to achieve and maintain a desired price level, even in a cashless environment. However, the study acknowledges limitations and calls for further research. Specifically, exploring the implications and challenges of implementing a cashless policy in Nigeria is necessary. Factors such as financial inclusion, technological infrastructure, and public acceptance should be examined to assess the feasibility and potential impacts of a cashless economy on different segments of society. Overall, this study contributes valuable insights into the possibility of implementing a cashless policy, its effects on money demand and price determination, and its implications for economic stability and efficiency in Nigeria.

Keywords: price; cashless policy; monetary policy; price determination; efficiency (search for similar items in EconPapers)
JEL-codes: E4 E41 E42 E44 (search for similar items in EconPapers)
Date: 2023-07-13
New Economics Papers: this item is included in nep-afr, nep-ban, nep-cba, nep-fle, nep-mon and nep-pay
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:117823

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Handle: RePEc:pra:mprapa:117823