PENGARUH SUBSTITUSI MATA UANG TERHADAP STABILITAS PERMINTAAN UANG DI INDONESIA

Currency substitution occurs as domestic money (both currency and deposits) is replaced by foreign money in the portfolio of local residents. It can directly reduce the demand for domestic currency, or does so indirectly by increasing the velocity of domestic money�s circulation. This study aims to investigate currency substitution in Indonesia. Estimates of the cointegrating relations is obtained using residual based test for the period 1990:4 to 2010:6. The empirical result shows that all variables significantly affected the long rung stability of demand for money in Indonesia. The differential of interest rate and exchange rate play a crucial role in Indonesia�s currency subsitutio