Yolanda Sari, Etik Winarni

The Impact of Cryptocurrency and Electronic Money Use On The Circulating Money Supply and Monetary Stability in Indonesia

Introduction

The impact of cryptocurrency and electronic money use on the circulating money supply and monetary stability in indonesia. Analyze the long-term & short-term impact of cryptocurrency & electronic money on Indonesia's money supply (M2) and monetary stability (exchange rates) via VECM.

Abstract

The purpose of this research is to analyze the long-term and short-term impacts of the use of cryptocurrency and electronic money on the money supply (M2) in Indonesia, as well as to analyze the long-term and short-term impacts of the use of cryptocurrency and electronic money on monetary stability (exchange rates) in Indonesia. The research method used is quantitative descriptive analysis with the Vector Error Correction Model (VECM) using the Eviews application and secondary data in the form of monthly data from 2011 to 2023 obtained from the official websites of Bank Indonesia and Finance. This study utilizes data on cryptocurrency transaction values and electronic money transaction values in Indonesia by analyzing the VECM model, which can observe the long-term and short-term impacts of the use of digital money on the money supply and monetary stability, in this case, viewed through the Indonesian exchange rate. The research results indicate that there is a one-way causality between electronic money and cryptocurrency, but not the other way around, and there is a one-way causality between the money supply and cryptocurrency, with the money supply as the dependent variable influencing cryptocurrency. The results of the VECM estimation indicate that in the long term, electronic money has a negative and sifnificant impact on the money supply. Meanwhile, the short-term estimation shows that both cryptocurrency and electronic money significantly influence the money supply, but their effects are dynamic and vary based on different lags. The long-term estimation with the exchange rate as the dependent variable shows that cryptocurrency does not have a significant impact on the exchange rate, while in the short term, both cryptocurrency and electronic money have a negative and significant effect on the exchange rate.

Review

This study tackles a highly relevant and contemporary issue concerning the evolving landscape of digital finance in an emerging economy, Indonesia. The research clearly articulates its dual objectives: to dissect both the long-term and short-term impacts of cryptocurrency and electronic money usage on Indonesia's M2 money supply and monetary stability, specifically using the exchange rate as a proxy. The chosen methodology, quantitative descriptive analysis utilizing the Vector Error Correction Model (VECM) with secondary monthly data spanning from 2011 to 2023, is well-suited for addressing the stated research questions and exploring dynamic relationships within macroeconomic variables. The explicit use of official data sources from Bank Indonesia and Finance, combined with the application of Eviews, lends credibility to the analytical approach. The findings presented offer intriguing insights into the complex interplay between traditional monetary aggregates and emerging digital financial instruments. The identification of one-way causality from electronic money to cryptocurrency, and from the money supply (M2) to cryptocurrency, is a notable observation that warrants further discussion on potential substitution or complementary effects. Regarding the money supply, the long-term negative and significant impact of electronic money on M2 is a critical finding, suggesting a potential shift in how money is held and circulated. While both cryptocurrency and electronic money show significant, albeit dynamic and lag-dependent, short-term influences on M2, this indicates the sensitivity of the money supply to these digital innovations. Furthermore, the analysis on monetary stability reveals that while cryptocurrency does not exert a significant long-term impact on the exchange rate, both digital instruments demonstrate a negative and significant short-term effect, highlighting their immediate market influence. Overall, this research makes a valuable contribution to the understanding of digital money's multifaceted effects on monetary policy concerns in a developing economy context. The empirical evidence provided, particularly regarding the differential long-term and short-term impacts, offers important considerations for policymakers at Bank Indonesia. While the abstract effectively summarizes key results, future iterations of this work could benefit from a deeper exploration of the economic mechanisms driving the observed causalities and dynamic effects, as well as a more detailed discussion of the policy implications of the long-term insignificance of cryptocurrency on the exchange rate versus its short-term impact. Nevertheless, the study is commendably structured and provides a solid foundation for further inquiry into an increasingly vital area of economic research.

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