Search for a command to run...
AbstractThis study examines digital financial innovation and the effectiveness of monetary policy in Nigeria, considering factors including mobile money, bank credit, interest rates, inflation, and money supply. Over the years, financial innovation has not really been felt in rural areas and urban centres. The variables utilised in this study help explain the relationship between digital financial innovation and monetary policy in Nigeria. The study examines the nexus between financial innovation and monetary policy, focusing specifically on mobile money usage as a proxy for financial innovation, to determine the extent to which key monetary policy variables (money supply, bank credit, interest rate, and inflation rate) affect the adoption and usage of mobile money services. Using quarterly time-series data from 2000 to 2024, the study applies advanced econometric techniques to analyse both short-run and long-run dynamics among the variables. Theoretically, the study is anchored on the Financial Intermediation Theory and the Monetarist Theory of Money, which suggest that monetary policy instruments influence liquidity conditions, credit allocation, and financial system development. Empirically, the findings reveal that money supply and bank credit exert positive, statistically significant influences on mobile money usage, indicating that improved liquidity and credit expansion enhance digital financial transactions. Interest rates are negatively related to mobile money usage, suggesting that higher borrowing costs may reduce financial activity and digital payment adoption. The inflation rate shows mixed effects, reflecting macroeconomic instability’s dual role in either accelerating demand for digital transactions or eroding purchasing power.The results imply that monetary policy plays a crucial role in shaping the growth trajectory of financial innovation. The study concludes that coordinated monetary and financial sector policies are essential to promote sustainable digital financial development. Policymakers are therefore encouraged to design monetary frameworks that support financial innovation while maintaining macroeconomic stability.