| Abstract: |
This study explores the feasibility of implementing a cashless policy in
Nigeria and its impact on money demand and price determination. Drawing from
renowned scholars such as Keynes, Friedman, and Woodford, the analysis delves
into the dynamics of monetary policy, the role of money in trade and financial
markets, and factors influencing price levels. The study investigates the
relationship between money demand and the implementation of a cashless policy.
It emphasizes the behavior of real balances, transaction velocity, and the
effects of monetary policy on trading activity and asset prices. The findings
indicate that as an economy moves towards a cashless system, various factors
come into play. Transaction velocity, a measure of cash efficiency, becomes
critical, increasing as cash usage diminishes and the economy becomes more
cashless. Additionally, the study reveals that implementing a cashless policy
affects price determination. Contrary to conventional belief, even as real
balances approach zero in a cashless economy, asset prices remain responsive
to monetary policy. This implies that monetary equilibrium prices do not
necessarily converge to their nonmonetary equilibrium counterparts when real
balances vanish. Based on these findings, a viable policy recommendation
emerges: the monetary authority should carefully manage the money supply per
investor to control and stabilize the price level in a cashless economy.
Adjusting the money supply allows the authority to achieve and maintain a
desired price level, even in a cashless environment. However, the study
acknowledges limitations and calls for further research. Specifically,
exploring the implications and challenges of implementing a cashless policy in
Nigeria is necessary. Factors such as financial inclusion, technological
infrastructure, and public acceptance should be examined to assess the
feasibility and potential impacts of a cashless economy on different segments
of society. Overall, this study contributes valuable insights into the
possibility of implementing a cashless policy, its effects on money demand and
price determination, and its implications for economic stability and
efficiency in Nigeria. |