Central Bank of Nigeria Digital Currency and Monetary Policy: A Review of Literature

Abstract

Making and handling money, serving as a clearinghouse for payment settlements, and serving as a lender of last resort are the main responsibilities of a central bank. But some argue that modern central banks have not only failed to stop macroeconomic crises, but may have made bad things worse by encouraging irrational risk-taking and moral hazard through unconventional monetary tools like negative interest rates and quantitative easing. In reviewing the prior research, this study investigates the potential effects of a central bank digital currency on the payment system, financial stability, and the transmission and execution of monetary policy. The review shows that, there is general agreement that central bank digital currency has the potential to increase financial inclusion, lower financial frictions in deposit markets, and enhance the dissemination of monetary policy. The paper also found that there are significant dangers connected with Central Bank Digital Currency, such as the potential for bank disintermediation and the resulting reduction in bank lending, as well as possible negative consequences on financial stability. Important concerns about the execution of monetary policy and the role played by central banks in the financial system are also raised by a central bank digital currency.