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Digital Financial Technologies and Monetary Policy Effectiveness: An Empirical Analysis of Nigeria’s Financial Ecosystem

Author

Listed:
  • Toyin Joseph Olufolahan

    (Federal University of Agriculture and Development Studies, Iragbiji, Nigeria)

  • Olawale Daniel Akinyele

    (Department of Economics, Redeemers University, Ede, Nigeria *Corresponding author’s email: Akinyeleolawale9@gmail.com)

  • Raimi Adekunle Anisere-Hameed

    (Department of Economics, Redeemers University, Ede, Nigeria)

Abstract

Nigeria's monetary authority faces a growing challenge as digital financial technologies (DFTs) evolve faster than the instruments used to implement monetary policy. This study examines whether DFTs, including electronic payments, banking digitalisation, and the eNaira, enhance or weaken monetary policy transmission in Nigeria. Using quarterly data from 2009Q1 to 2024Q4, a composite Digital Financial Technology Index (DFTI) is constructed via Principal Component Analysis and incorporated into a DOLS model that covers the interest-rate, credit, and exchange-rate channels, alongside forecast error variance decomposition and Toda–Yamamoto causality tests. The results show that digitalisation increases inflationary pressures, destabilises the velocity of money, and weakens the pass-through of the monetary policy rate to lending rates. However, the credit channel remains largely effective, while digital finance continues to promote economic growth. Causality results indicate that the policy rate still influences inflation and credit, although digital finance increasingly conditions the transmission mechanism. The findings suggest that Nigeria has reached a threshold where further digital deepening reduces the effectiveness of conventional interest-rate policy. The study recommends integrating digital-finance indicators and real-time digital transaction data into the Central Bank of Nigeria's monetary policy framework to strengthen policy effectiveness

Suggested Citation

  • Toyin Joseph Olufolahan & Olawale Daniel Akinyele & Raimi Adekunle Anisere-Hameed, 2026. "Digital Financial Technologies and Monetary Policy Effectiveness: An Empirical Analysis of Nigeria’s Financial Ecosystem," Ilorin Journal of Economic Policy, Department of Economics, University of Ilorin, vol. 13(2), pages 103-116.
    • Handle: RePEc:ris:ilojep:023872
    DOI: https://dx.doi.org/10.4314/ijep.v13
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    Keywords

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    JEL classification:

    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O35 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Social Innovation

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