Effect of Digital Payment Channels on Currency in Circulation in Nigeria

Abstract

This study examined the impact of digital payment channels (DPCs) on currency in circulation (CIC) in Nigeria using quarterly data from 2009Q1 to 2023Q4. Regression and Vector Error Correction Model (VECM) techniques were applied. Results show that all channels had positive and significant effects on CIC when examined individually, while the result of multiple regression reveals that ATM transactions exert the strongest influence. VECM findings indicated that mobile payments negatively affect CIC in the long run, while POS transactions have a positive long-run effect, with weak short-run relationships overall. The adjustment speed to equilibrium was high (81%). Diagnostic tests show no autocorrelation or heteroskedasticity; nonetheless, multicollinearity and non-normality of residuals existed. ARMA-MLE estimation improved reliability as the model passed all the post diagnostic tests with existing mixed result. The study concludes that DPCs have heterogeneous channel-dependent effects on cash usage and recommends strengthening digital infrastructure and promoting mobile payments.