Currency Substitution and General Business Indicators in Nigeria

Abstract

Purpose: This paper examines the effects of currency substitution on general business indicators in Nigeria. Theoretical framework: This paper is based on portfolio balance theory which is concerned with interest rate adjustment and achieving the market equilibrium on currency substitution aggregate. Design/Methodology/Approach: The paper employed appropriate econometric techniques such as the cointegration and error correction model (ECM) approach to examine the long run and short run attendant relationships. Findings: Empirical findings from this study indicate that there is a long run relationship between currency substitution and general business indicators variables as inflation, interest rate differentials, and exchange rate depreciation in Nigeria, the magnitudes of the impact of each are weak. Research, Practical & Social implications: The construction and analysis of currency substitution and general business environment by this study have provided relevant information for Nigerian economy in preparing for substantial currency substitution that would give clear understanding of the aggregate business environment on existing currency substitution policy that may lessen the anxiety of the apparent environmental challenges faced by the countries, and this will further provide policy directions for future currency substitution reforms in the various segment of the economy. Originality/Value: The originality of this study lies in its analysis of currency substitution and general business environment. Furthermore, the study highlights the relevance of tackling regulatory issues to ensure the safe and effective use of currency substitution.