Deposit Volatility in Digital Age: Cashless Policy and Liquidity Management in Emerging Market

Abstract

This study examined the effect of cashless policy instruments on the liquidity of deposit money banks (DMBs) in Nigeria from 2010 to 2023. This study evaluated ATM usage, POS terminal deployment, and mobile banking adoption on the liquidity ratio of Nigerian deposit money banks. Grounded in the Diamond-Dybvig model of bank runs and the Diffusion of Innovation Theory, this study assessed the macro-prudential effect of cashless instruments using secondary data from the Central Bank of Nigeria Statistical Bulletin, the Nigeria Deposit Insurance Corporation Annual Report, and the Nigeria Inter-Bank Settlement System. Econometric analysis was conducted via the Autoregressive Distributed Lag (ARDL) model. The findings showed that ATM usage yielded a negative but statistically insignificant effect on bank liquidity. POS terminal usage demonstrated no significant relationship with liquidity and, mobile banking exerted a negative and statistically insignificant effect on liquidity. Thus, findings revealed a critical liquidity paradox that expanded digital financial access and transaction volumes do not guarantee improved bank liquidity positions. Meaningful liquidity enhancement hinges on deep operational integration and regulatory alignment of digital channels with core banking functions. To translate cashless adoption into tangible liquidity gains, regulators must shift strategy from basic channel expansion to value-creating infrastructure. Specifically, policies should strengthen ATM cash management, transform POS agent networks into deposit-mobilization hubs, and align mobile banking ecosystems with prudential liquidity frameworks.