Financial innovation refers both to technological advances which facilitate access to
information, trading and means of payment. The demand for money is very crucial in the
conduct and determination of the effectiveness of monetary policy. This study attempts to
analyse whether financial innovations that occurred in Nigeria after the Structural
Adjustment Programme of 1986 has affected the demand for money in Nigeria using the
Engle and Granger Two-Step Cointegration technique. Though the study revealed that
demand for money conforms to the theory that income is positively related to the demand
for cash balances and interest rate has an inverse relationship with the demand for real cash
balances, it was also di scovered that the financial innovations introduced into the financial
system have not significantly affected the demand for money in Nigeria. Based on the
results obtained, a policy of attracting more patticipants (non-government) and private
sector funds to the money market is necessary as this will deepen the market and make the
market more dynamic and amenable to monetary policy. Therefore, the study concludes
that financial innovation has had no significant impact on the demand for money in Nigeria
and the SAP era financial liberalization policies have had no indirect impact on the demand
for money as well
