Central Bank Digital Currency (E-Naira) Adoption And Monetary Policy Effectiveness: Evidence From Nigeria’s Financial Markets
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Abstract
This study investigates whether the adoption of Nigeria’s central bank digital currency, the eNaira, enhances monetary policy effectiveness within the domestic financial system. Motivated by gaps in the literature, which largely overlook digital-currency transmission channels in emerging economies, the study develops a novel analytical framework linking eNaira uptake to broader policy signals, liquidity conditions, and financial-market responses. Using annual data from 2010–2023, the analysis employs a comprehensive econometric strategy comprising unit-root diagnostics (ADF and Phillips–Perron), Vector Autoregressive (VAR) modelling, and Panel-style robustness checks. The empirical design also incorporates error-correction dynamics, Hansen stability diagnostics, and Arellano–Bond tests to ensure parameter consistency and model validity. Results demonstrate that increased eNaira adoption strengthens the monetary transmission mechanism by improving the speed and clarity of policy-rate pass-through to key market indicators, particularly interest-rate adjustments, exchange-rate movements, and broad-money trajectories. VAR-based impulse responses further reveal that digital-currency shocks generate measurable and persistent impacts on financial-market behaviour, suggesting enhanced policy traction relative to pre-adoption dynamics. The findings imply that digital-currency deployment, when supported by adequate infrastructure, cybersecurity safeguards, and user-confidence measures, can complement conventional monetary tools and reduce frictions in policy signalling. The study concludes that Nigeria’s digital-currency strategy offers a viable pathway for modernising monetary operations but emphasises the need for targeted investment in digital literacy, robust consumer-protection frameworks, and systemwide interoperability to sustain the observed gains. These insights provide valuable guidance for monetary authorities and regulators considering digital-currency integration into macroeconomic management..
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