CURRENCY HOARDING, MONETARY POLICY AND INFLATION IN NIGERIA

ABSTRACT

This study delves into the intricate relationship between currency hoarding, monetary policy, and inflation within the context of Nigeria for the period of 1990 to 2020. It aims to ascertain if there is a relationship between currency hoarding and inflation in Nigeria and also examine how currency hoarding affects the relationship between monetary policy and inflation in Nigeria. The study would be of utmost significance to student and other researchers who are interested in understanding how currency hoarding affects the relationship between monetary policy and inflation in Nigeria. It focuses on unravelling how changes in currency in circulation, interest rates and money supply impact inflation dynamics. The methodology employed is the Error Correction Model (ECM), analysing data spanning the years 1990 to 2000. Findings reveal crucial insights. Currency in Circulation as a percentage of GDP (CPG) is positively related to inflation rate (INF), signifying that an increase in CPG contributes to inflationary pressures. Conversely, interest rates (INTR), exhibits a statistically significant negative relationship with inflation, with higher interest rates acting as a counterforce to inflation. However, changes in money supply (MS) shows no significant impact on inflation. The interaction term (CHMP) was found to have minimal impact on inflation. Policy recommendations drawn from these findings emphasize a balanced management of currency in circulation to avoid excessive inflation, continued use of interest rates as an effective tool for controlling inflation, diversification of monetary policy tools, and the adaptation of holistic economic policies. Improved data collection and research, exchange rate management, and transparent communication are also highlighted as critical factors for effectively addressing inflation in Nigeria. In summary, this study uncovers the multifaceted nature of inflation dynamics in Nigeria and provides valuable guidance for crafting comprehensive policies to manage inflation in the nation.