Do we still need coins? The role of payment system innovation, the pandemic, and the coin's purchasing power on coin demand in Indonesia

TL;DR

This study analyzes how payment innovations, the pandemic, and coin depreciation influence coin demand in Indonesia, revealing coins remain essential despite digital payment growth.

Contribution

It provides empirical evidence on the long-term determinants of coin demand in Indonesia, highlighting the continued importance of coins amidst payment system evolution.

Findings

Long-term relationship between coin demand and its determinants

Coins remain vital despite digital payment advancements

Policy recommendations for coin circulation and denomination structure

Abstract

This study investigates the relationship between coin demand, payment innovation, COVID-19, and a coin's purchasing power, particularly in emerging countries like Indonesia. The rapid advancement of payment platforms, combined with high adoption during the pandemic, has positioned non-cash payments as a complement or substitute for coin money for transactions. However, there is notably limited coin-money-related research in the economic literature. Employing the autoregressive distributed lag (ARDL) bounds test methodology's cointegration approach using monthly data from 2011 to 2022, our findings reveal a long-term relationship between coin demand and its determinants: payment innovations, the pandemic, coin depreciation, and income. Despite the swift advancement of payment innovations and their usage, coins remain vital to the economy and are unlikely to become obsolete soon. Our study offers essential policy recommendations and enriches the field of knowledge on coin money demand. Policymakers must understand the driving factors of coin demand in both economic and non-economic contexts to improve coin production-related issues and coin circulation policies. Reviewing the Rupiah denomination structure is crucial in addressing the problem of ineffective coin circulation in the economy.