Cryptocurrency and Fiat Monetary Transmission Dynamics in Nigerian Economy
A Bayesian DSGE Approach
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Abstract
This study examines the relationship between cryptocurrency and government-issued currency in the Nigerian economy through a Dynamic Stochastic General Equilibrium (DSGE) model estimated using the Bayesian framework. The model incorporated heterogeneous agents who decide on holding balances between fiat currency and cryptocurrency based on utility maximization. Using monthly data covering from April 2013 to December 2024, the response of macroeconomic variables to shocks in preferences, productivity, demand for cryptocurrency and fiat money and monetary policy were analyzed. The findings reveal that cryptocurrencies substitute the naira during real economic shocks, driven by inflation and exchange rate uncertainty, while monetary policy shocks create a complementary relationship. The study further highlighted the limited effectiveness of utilizing only bans in deterring cryptocurrency adoption as such bans are counterproductive without addressing underlying economic drivers. However, credible and transparent monetary policy can moderate the speculative impact of cryptocurrencies. Policy recommendations include strengthening regulatory frameworks instead of bans and promoting the eNaira to meet digital currency demand while preserving monetary sovereignty.
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Copyright (c) 2026 Nwosu Chinedu A., Marcus Samuel N., Nwaogwugwu Chika S., Emeh Kenneth O., Obiukwu Nwanyioma J., Okonkwo Kosie (Author)
This work is licensed under a Creative Commons Attribution 4.0 International License.
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