CORRELATION BETWEEN ELECTRONIC MONEY AND THEVELOCITY OF MONEY

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.