Effect of Developing Electronic Payment Instruments on Money Demand

It is assumed that there are some changes in the payment system with application of information technology in this field, so that for many of retail payments we do not need cash. Changes in payment methods, create changes in money demand which may have significant economic effects. In this study the effect of changing in payment methods, from paper-based to electronic ones, on money demand function is estimated using a panel of time series data from 2002 to 2010. By applying econometric methods, we conclude that development of electronic payment could have negative effect on money demand.