Open Access Journal Article

Digital Currency and Financial Markets in Nigeria: Impact and Policy Implications

by Chioma Nwosu Peace a Bosha Ernest Oryiman a  and  Abubakar Ibrahim Sani a,*
Research Department, Central Bank of Nigeria, Abuja, Nigeria
Author to whom correspondence should be addressed.
FEL  2023, 18; 2(3), 18;
Received: 4 October 2023 / Accepted: 24 November 2023 / Published Online: 1 December 2023


The rise of privately issued digital currencies, which primarily serve as alternative investment assets poses a challenge to the traditional financial instruments traded in the financial market. This study examines the dynamic relationship between the major privately issued digital currency (Bitcoin) and two financial market securities in Nigeria. The paper employed Vector Autoregressive (VAR) model and presents three relevant findings. First, the impulse response function indicates the absence of a significant response of the Nigerian financial market to shocks emanating from the Bitcoin market, implying lower connectedness between the two markets. Secondly, the outcome of the variance decomposition reveals a lower contribution of Bitcoin to changes in stock prices and treasury bills, however, stock prices and treasury bills contributed higher impact to each other compared to the contribution of Bitcoin. Thirdly, a weak bi-directional causality between the Bitcoin and treasury bills was observed and a uni-directional causality running from treasury bills and stocks, implying the existence of portfolio rebalancing from the fixed income to the equities market. Despite the weak connection between digital currency and the financial market, the paper recommends that the Central Bank of Nigeria and the Securities and Exchange Commission should maintain monitoring the development of crypto exchanges and continue reviewing the existing policy restricting cryptocurrency transactions through banks to avoid its unsavoury effects.

Copyright: © 2023 by Peace, Oryiman and Sani. This is an open-access article distributed under the terms of the Creative Commons Attribution License (CC BY) (Creative Commons Attribution 4.0 International License). The use, distribution or reproduction in other forums is permitted, provided the original author(s) or licensor are credited and that the original publication in this journal is cited, in accordance with accepted academic practice. No use, distribution or reproduction is permitted which does not comply with these terms.

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ACS Style
Peace, C. N.; Oryiman, B. E.; Sani, A. I. Digital Currency and Financial Markets in Nigeria: Impact and Policy Implications. Financial Economics Letters, 2023, 2, 18.
AMA Style
Peace C N, Oryiman B E, Sani A I. Digital Currency and Financial Markets in Nigeria: Impact and Policy Implications. Financial Economics Letters; 2023, 2(3):18.
Chicago/Turabian Style
Peace, Chioma N.; Oryiman, Bosha E.; Sani, Abubakar I. 2023. "Digital Currency and Financial Markets in Nigeria: Impact and Policy Implications" Financial Economics Letters 2, no.3:18.
APA style
Peace, C. N., Oryiman, B. E., & Sani, A. I. (2023). Digital Currency and Financial Markets in Nigeria: Impact and Policy Implications. Financial Economics Letters, 2(3), 18.

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