CURRENCY DENOMINATIONS AND INFLATION RATE IN NIGERIA

ABSTRACT

The effect of an increasing inflation rate on the economy of any country is hazardous, as it is a major macroeconomic concern in every country. High rate of inflation has crippled the economy of many nations. This study examines the relationship between inflation rate and currency denominations in the Nigeria society. The study used the Augmented Dickey-Fuller (ADF) test to test for the stationary of the variables at level and first difference. Also, the study examines the causal relationship between inflation, currency denomination, broad money supply, narrow money supply and public debt using Autoregressive Distributed Lag model bound test to establish if the stationary variables are co-integrated in the long run. The ECM was also employed to check for any form of disequilibrium in the short run. The results given by the stationary and diagnostic tests reveal that the model is well specified and could be used for policy analysis. The data for the study were extracted from the CBN statistical bulletin and World Development Indicators (WDI) for a time period of 41years between 1981 and 2022. The study found the relationship between inflation and currency denomination, broad money supply to be negative in the long run, while the relationship between narrow money supply, public debt and inflation were found to be positive, all variables were found to be insignificant at 5% level except public debt. Owning to the finding by the study that the relationship between currency denomination and inflation rate in Nigeria were negative, the study note that policy makers should therefore employ the right mix of both fiscal and monetary policy to combat the increasing rate of inflation and also smaller denominations should be circulated more than the higher currency denominations to further curb the effect of an increasing rate of inflation. There should also be mindful circulation and supply of the country’s currency into the economy. Public debt should also be appropriately given much attention.