Abstract
The purpose of this study is to investigate the effect of non-cash payment transactions on economic growth in Indonesia and to see the responses from supporting variables, such as the velocity of money and the price of transactions. This study involves a Vector Error Correction Model (VECM) analysis tool, using monthly time series data during 2009: 1 – 2017: 12. The results show that the payment instrument affects economic growth, especially the Card-Based Payment Instrument (CBPI). In addition, there are changes to the velocity of money and prices caused by the increase in the use of non-cash payment instruments. Keywords: Electronic Payment, Economic Growth, Vector Error Correction Model (VECM)JEL: E4; C51
Highlights
Money is used as a payment instrument in every economic activity
Transactions in the economy are facilitated by banknotes and non-cash instruments as information technology developments (Bank Indonesia, 2012; Fung et al, 2014)
This study finds that using an electronic payment system for retail is more efficient in encouraging overall economic growth, consumption, and trade
Summary
Money is used as a payment instrument in every economic activity. Transactions in the economy are facilitated by banknotes and non-cash instruments as information technology developments (Bank Indonesia, 2012; Fung et al, 2014). The payment channels used are increasingly varied. Other payment channels considered to be highly practical and efficient are internet transactions and mobile banking. These increases are in line with the improvements in fund payment services between customers and banks. The development of non-cash payment systems abroad that leads to a less-cash society influences lifestyles and economic transactions in Indonesia (Bank Indonesia, 2011). The costs of cash transactions are pretty expensive as 5% of the sum is paid by the consumers or 3% of the total GDP is used for non-cash transaction price, including that used for money printing or seigniorage (Hancock & Humphrey, 1998) non-cash payments systems only require one-third to a half of the costs of paper-based payment systems (Humphrey, 2001)
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