Nigerian Journal Sustainability Research

Publications

Vol. 4 No. 1 (2026): Building Resilience: Perspectives on Sustainability

Central Bank Digital Currency as a Catalyst for Enhancing Monetary Policy Effectiveness and Banking Stability in Nigeria

Submitted
January 30, 2026
Published
2026-02-08

Abstract

The study investigated the impact of Central Bank Digital Currency (CBDC) as a catalyst for enhancing monetary policy effectiveness and banking system stability in Nigeria. The aim of the study was to examine how CBDC influences monetary policy transmission mechanisms and banking sector stability within the Nigerian financial system. The scope of the study covered annual macroeconomic time- series data from 2009 to 2025, incorporating both the pre- CBDC period (2009–2020) and the post-CBDC adoption period (2021–2025), focusing on banking system stability, monetary policy rate, money supply, inflation, and CBDC adoption. The study adopted a quantitative research design and utilized the Autoregressive Distributed Lag (ARDL) modeling technique to capture both short-run and long-run dynamics among the variables. The theoretical framework was anchored on Public Choice Theory, Resource Dependency Theory, and Management and Role Theory. The findings of the study revealed that CBDC has a statistically significant but moderate impact on both monetary policy effectiveness and banking system stability, while monetary policy rate and money supply negatively affect banking stability in Nigeria. Inflation increases financial system vulnerability, whereas CBDC does not generate structural instability despite its post-2021 introduction, as confirmed by stability tests. The study concluded that CBDC represents an emerging financial innovation that enhances monetary policy effectiveness and contributes to banking stability. Therefore, the study recommended strengthened CBDC integration, improved digital infrastructure, enhanced public awareness, and continuous policy monitoring for financial stability.

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