DIGITAL FINANCIAL INCLUSION AND THE TRANSMISSION OF MONETARY POLICY IN SUB-SAHARAN AFRICA
Abstract
Monetary policy is an important tool of economic stabilization in modern economies. In recent years, the growth of fintech in Africa has seen Sub-Saharan African countries have one of the highest adoption rates of mobile money. Hence, this study seeks to examine whether the high adoption rate of mobile money has added complexity to the financial system structure and thus influences the effectiveness of monetary policy in these countries by using local projection and panel data analysis. The empirical evidence suggests that while digital financial inclusion (more adoption of mobile money) has transformed financial access in Sub-Saharan Africa, it has also introduced new complexities into the monetary transmission process - it appears to weaken the effectiveness of monetary policy in controlling inflation, having limited influence on output dynamics. The results reinforce need for a modernized monetary policy framework that reflects the realities of a rapidly evolving digital financial landscape.
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