Introducing Cashless Transaction Index based on the Effective Medium Approximation

TL;DR

This paper introduces a novel cashless transaction index (CTI) based on the effective medium approximation (EMA), modeling cash and cashless transactions as insulators and conductors to quantify a country's cashless economy level.

Contribution

The paper applies the EMA method to develop a new index for cashless transactions, providing a quantitative measure of cashless economy development.

Findings

The CTI correlates well with recent data on cashless transactions.

The model explains the growth trend of cashless economies.

The time-dependent equation predicts future cashless share dynamics.

Abstract

The effective medium approximation (EMA) method is commonly used to estimate the effective conductivity development in composites containing two types of materials: conductors and insulators. The effective conductivity is a global parameter that measures how easily the composite conducts electric current. Currently, financial transactions in society take place in cash or cashless, and, in the cashless transactions the money flows faster than in the cash transactions. Therefore, to provide a cashless grading of countries, we introduce a cashless transaction index (CTI) which is calculated using the EMA method in which individuals who make cash transactions are analogous to the insulator element in the composite and individuals who make cash transactions are analogous to the conductor element. We define the CTI as the logarithmic of the effective conductivity of a country's transactions. We also introduce the time dependent equation for the cashless share. Estimates from the proposed model can explain well the data in the last few years.