FINANCIAL INNOVATION AND MONEY DEMAND FUNCTION IN NIGERIA (1980-2008)

ABSTRACT

          This study attempts to analyzed whether financial innovations that occurred in Nigeria after the structural adjustment programme has affected the demand for money in Nigeria. Meaning of financial innovation.  Financial innovation refers to as anything which ensure greater access to information, quicker means of carrying transaction and greater ease of liquidity with lower risk. While money demand refers to as demand for real money balances desire of household and business to hold assets in a form that can be easily exchange for good and services.  The source f data was secondary.  The methodology used in the research work was co-integration and Error Correction Mechanism (ECM). Though the study revealed that demand for money conforms to the theory that interest rate has an inverse relationship with the demand for real cash balances, it was also discovered that the financial innovations introduced  into the financial system has not significantly affected the demand for money function in Nigeria. Based on the result obtained in this study, a policy recommendation was made that although financial innovation have not affected the demand for money thus, there is still a basis for monetary policy. It is something that cannot be avoided and as such the CBN should be preparing for when it comes and also the non-government and private sector funds is necessary in the money market as this will help in deepening the market and make it more dynamic and amenable to monetary policy.