EFFECT OF INCREASING USE THE CARD PAYMENT EQUIPMENT ON THE INDONESIAN ECONOMY

Abstract

Non-cash payments have been increasing significantly, followed by its substitution and
efficiency effects. Cash payment is substituted, inducing a decrease of cash holding 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 Vector Error
Correction Model (VECM), its impacts on the economy are investigated. The result shows that
cash holdings decrease, while money stock M1 and M2 increase. The increase of non-cash
payments also induces GDP growth and slight price decrease.
Keywords: non-cash, payment system, money demand, JEL: E42, E52