CORRELATION BETWEEN ELECTRONIC MONEY AND THE VELOCITY OF MONEY
Abednego Priyatama, Gunadarma University (Jakarta), Indonesia Apriansah, Gunadarma University (Jakarta), Indonesia
Technological developments in the field of information and communication affect the emergence of new innovations in electronic payments. One of which is e-money (Electronic Money). In Indonesia, e-money has the potentials to substitute the role of money in cash for payments in retail transactions. According to Bank Indonesia Regulation No. 7/52/PBI/2005, electronic money (e-money) includes the Card Payment (APMK) such as debit cards, credit cards and ATM cards. This research aims to analyze the relationship between the rate of use of e-money (Electronic Money) and the amount of money circulating in the community and how the velocity of money occurs. Secondary data, which were used in this study, obtained from the website of Bank of Indonesia. It was found that the use of e-money as an electronic payment instruments as an alternative payment instrument has been beneficial, particularly for micro-payment and retail nature. The issue of e-money can act as a factor that changes the money demand function and reduce the average amount of cash held. This would increase circulation of money in the economy which also means increase the velocity of money.
The rapid globalization of business environment increases trade and investment in greater quantities, creating national wealth and prosperity of consumers, especially in developing countries. Technological progress makes the world increasingly without borders. The development and information technology have impacted the various fields, not least in the field of payment systems, especially the retail payment system with the emergence of a payment instrument, known as electronic money (e-money). The use of e-money as an alternative means of non- cash payments in several countries indicate a significant potential to reduce the growth rate of cash usage, especially for payments which are micro-up to retail. Electronic money is a product of such digital convergence, and is an electronic replacement for cash. It is storable, transferable, and perhaps unforgettable. It is meant to be used in place of tokens and banknotes for the purpose of making payments electronically.
In one report published by the Bank for International Settlements (BIS) in October 1996, e-money is defined as a stored-value products or where a number of prepaid cash value (monetary value) are stored electronically in an electronic equipment owned by someone. E-money is intended for various purposes of payment (multi-purpose), unlike most single-prepaid card that can only be used for specific purposes such as telephone cards.
According to Bank Indonesias regulations, a prepaid card (e-money) is a means of payment using the card can be used to make payments on obligations arising from economic activities, including expenditure transactions where the card holders obligations fulfilled immediately by reducing the direct deposit card holders in addition to the Bank or Institution approved by the Bank to raise funds.
Appropriate provisions on this point is a prepaid card (e-money) is a Payment Tool Using Card that can be used to make payments on obligations arising from economic activities, including expenditure transactions where the card holders obligations fulfilled immediately by reducing direct cardholder savings in addition to the Bank or Institution approved by the Bank to raise funds.
The definition of Electronic Money is a means of payment that meets the elements: (1) issued on the basis of the value of money deposited by the holder prior to the publisher; (2) the value of money stored electronically in a medium such as a server or chip; (3) is used as a means of payment to the merchant who is not a publisher of electronic money; (4) the value of electronic money is deposited by shareholders and managed by the publisher is not a deposit as referred to in the laws governing banking.
Based on the 'Development of Electronic Money and Its Impact on the Central Banks Role and Monetary Policy ', paper from Mohammed Al-Laham and Haroon Al-Tarawneh in the year 2009, “The term [electronic] money refers to various proposed electronic payment mechanisms designed for use by consumers to make retail payments. Digital money products have the potential to replace central bank currency” (Berentsen, 1997). This quote indicates that the advent of electronic money will have an impact on the banking system and monetary policy. While this topic is controversial it seems obvious that some changes will result and that there is no prefect answer to predict this new instruments affect on monetary aggregates and the role of central banks. It can impact such variables as monetary supply, exchange rates, the money multiplier, velocity of money. Increased reliance on electronic money as a substitute for currency will directly affect the central bank and its control over monetary aggregates and policies. E-Money, as a network good, could become an important form of currency in the future. Such a development would influence the effectiveness and implementation of monetary policy. If an increased use of e-money substantially limits demand for central bank reserves, it would require changes in the operational target of the central bank and a closer coordination of monetary and fiscal policies
As the instruments are electronic payments, e-money has various advantages and potential risks as a means of payment other electronically.
ADVANTAGES OF E-MONEY
Most money in todayrsquo;s world is electronic, and tangible cash is becoming less frequent. With the introduction of internet/online banking, debit cards, online bill payments and internet business, paper money is becoming a thing of the past. Banks now offer many services whereby a customer can transfer funds, purchase
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CORRELATION BETWEEN ELECTRONIC MONEY AND THE VELOCITY OF MONEY
Abednego Priyatama, Gunadarma University (Jakarta), Indonesia Apriansah, Gunadarma University (Jakarta), Indonesia
Technological developments in the field of information and communication affect the emergence of new innovations in electronic payments. One of which is e-money (Electronic Money). In Indonesia, e-money has the potentials to substitute the role of money in cash for payments in retail transactions. According to Bank Indonesia Regulation No. 7/52/PBI/2005, electronic money (e-money) includes the Card Payment (APMK) such as debit cards, credit cards and ATM cards. This research aims to analyze the relationship between the rate of use of e-money (Electronic Money) and the amount of money circulating in the community and how the velocity of money occurs. Secondary data, which were used in this study, obtained from the website of Bank of Indonesia. It was found that the use of e-money as an electronic payment instruments as an alternative payment instrument has been beneficial, particularly for micro-payment and retail nature. The issue of e-money can act as a factor that changes the money demand function and reduce the average amount of cash held. This would increase circulation of money in the economy which also means increase the velocity of money.
The rapid globalization of business environment increases trade and investment in greater quantities, creating national wealth and prosperity of consumers, especially in developing countries. Technological progress makes the world increasingly without borders. The development and information technology have impacted the various fields, not least in the field of payment systems, especially the retail payment system with the emergence of a payment instrument, known as electronic money (e-money). The use of e-money as an alternative means of non- cash payments in several countries indicate a significant potential to reduce the growth rate of cash usage, especially for payments which are micro-up to retail. Electronic money is a product of such digital convergence, and is an electronic replacement for cash. It is storable, transferable, and perhaps unforgettable. It is meant to be used in place of tokens and banknotes for the purpose of making payments electronically.
In one report published by the Bank for International Settlements (BIS) in October 1996, e-money is defined as a stored-value products or where a number of prepaid cash value (monetary value) are stored electronically in an electronic equipment owned by someone. E-money is intended for various purposes of payment (multi-purpose), unlike most single-prepaid card that can only be used for specific purposes such as telephone cards.
According to Bank Indonesias regulations, a prepaid card (e-money) is a means of payment using the card can be used to make payments on obligations arising from economic activities, including expenditure transactions where the card holders obligations fulfilled immediately by reducing the direct deposit card holders in addition to the Bank or Institution approved by the Bank to raise funds.
Appropriate provisions on this point is a prepaid card (e-money) is a Payment Tool Using Card that can be used to make payments on obligations arising from economic activities, including expenditure transactions where the card holders obligations fulfilled immediately by reducing direct cardholder savings in addition to the Bank or Institution approved by the Bank to raise funds.
The definition of Electronic Money is a means of payment that meets the elements: (1) issued on the basis of the value of money deposited by the holder prior to the publisher; (2) the value of money stored electronically in a medium such as a server or chip; (3) is used as a means of payment to the merchant who is not a publisher of electronic money; (4) the value of electronic money is deposited by shareholders and managed by the publisher is not a deposit as referred to in the laws governing banking.
Based on the 'Development of Electronic Money and Its Impact on the Central Banks Role and Monetary Policy ', paper from Mohammed Al-Laham and Haroon Al-Tarawneh in the year 2009, “The term [electronic] money refers to various proposed electronic payment mechanisms designed for use by consumers to make retail payments. Digital money products have the potential to replace central bank currency” (Berentsen, 1997). This quote indicates that the advent of electronic money will have an impact on the banking system and monetary policy. While this topic is controversial it seems obvious that some changes will result and that there is no prefect answer to predict this new instruments affect on monetary aggregates and the role of central banks. It can impact such variables as monetary supply, exchange rates, the money multiplier, velocity of money. Increased reliance on electronic money as a substitute for currency will directly affect the central bank and its control over monetary aggregates and policies. E-Money, as a network good, could become an important form of currency in the future. Such a development would influence the effectiveness and implementation of monetary policy. If an increased use of e-money substantially limits demand for central bank reserves, it would require changes in the operational target of the central bank and a closer coordination of monetary and fiscal policies
As the instruments are electronic payments, e-money has various advantages and potential risks as a means of payment other electronically.
ADVANTAGES OF E-MONEY
Most money in todayrsquo;s world is electronic, and tangible cash is becoming less frequent. With the introduction of internet/online banking, debit cards, on
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