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Impact Of Non-Cash Payment Increase On The Economy And Its Implication For Monetary Control In Indonesia

Non-cash payments have been increasing significantly, followed by its substitution and efficiency effects. Cash payment is substituted, inducing a decrease of cash holdings by economic agents, while on the other hand more money enters the banking system. The increase of non-cash payments also cuts transaction costs, and the economy runs more efficiently. Using a Structural Cointegrating VAR, the impact on the economy is investigated. The result shows that cash holdings decreased, while the M1 and M2 money stock increased. The increase of non-cash payments also induces GDP growth and slight price decreases. Its implication for monetary policy was also analyzed, showing a decrease of the BI rate and monetary policy costs. .Printed Journal

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