Studies on currency in circulation have attracted the attention of economists in developing countries. This study examined the role of currency in circulation (CIC) in promoting economic performance, based on annual data for the period 1960-2009; and using Vector Auto-regression Model (VARM) and VAR Granger Causality Test. The study revealed contrary to expectations that, the coefficient of currency in circulation when lagged by one period is positive but statistically insignificant at 5%. The statistically insignificant relationship that exists between monetary instruments such as exchange rate, inflation rate, normal interest rate, high power money, currency in circulation, demand deposit and normal GDP sheds more light on how ineffective monetary policies adopted by the Central Bank of Nigeria (CBN) for promoting economic growth. These findings suggest that the cashless economy being proposed by the CBN will have a significant impact on the performance of Nigeria’s economy. Government should thus provide adequate infrastructure and enabling legal frameworks that will help the informal sector of the economy to embrace the cashless payment system, so as not to erode the contribution of the informal sector to GDP in Nigeria. The study also recommends that the CBN should increase the deposit rate which will to serve as incentive and enforce existing financial regulations that protect depositors.
Keywords: currency in circulation, GDP, modern QTM, vector auto regression model