Relationship between Currency outside Banks and Inflation Control in Nigeria (1990-2023)

This is an investigation into the relationship between currency outside banks and inflation control in Nigeria, for the sample period 1990 to 2023. In other to achieve this, the specification where consumer price index (a proxy for inflation) is the dependent variable, with currency outside banks (COB) broad money supply (M2) and exchange rate (EXR) as explanatory variables was adopted. Autoregressive distributed log model (ARDL) was employed in the analysis and estimation of the parameters. The analysis disclosed that in the shortrun any increase in currency outside banks significantly increased the consumer price index (CPI), thus creating an increased inflationary pressure in the economy. However, in the second lag, currency outsidebanks exerted a significantly negative impact on CPI, suggesting a delayed corrective effect, possibly arising from policy interventions from the Central Bank of Nigeria. In the longrun, currency outside banks exerted a significant positive impact on CPI, confirming that sustained high COB undermine monetary control and fueled inflation pressures. It is recommended that (1) the CBN should intensify her efforts in financial inclusion by expanding mobile banking, agent banking, and digital payment platforms especially in rural areas, and cash reliant informal markets and (2) ensure that the volume of liquidity in the economy is maintained at levels in proportion to the output of the real sector.