Abstract:
This paper uses Nigeria as a case study to examine the future economic impact of implementing higher currency denominations in African economies. Driven by the common currency crisis, inflation, and increasing transaction costs, this paper examined the impact of new higher currency denomination notes (e.g., ?5,000, ?10,000, ?20,000) on inflation, velocity of money, monetary aggregates, tax compliance, informal sector activity, seigniorage, and financial inclusion. The paper used a mixed-method strategy: (1) econometric analysis based on macro- and micro-level panel data on Nigeria and a sample of similar African economies over 2000–2024; (2) difference-in-differences (DiD) based on exploited historical denomination changes in related countries, where possible; and (3) structured key informant interviews that included central bank officials, commercial bankers, and selected SMEs. The main estimation methods are panel fixed effects, instrumental variables to overcome endogeneity (e.g., money demand shock instrumented by changes in commodity prices), dynamic macro effects on a single variable (vector autoregressions (VAR)), and robust placebo checks. It will be hoped that the findings will reveal short- and medium-term changes in inflation and cash use, distribution effects in both formal and informal sectors, and policy trade-offs of monetary authorities. The paper ends up giving specific policy suggestions to the Central Bank of Nigeria and fiscal authorities, as well as implications for other African economies in the event of considering denomination changes. |
