An analysis of cashless society for monetary policy in perspective of Islam

The increasing use of non-cash financial instrument (cashless society) is observable from the increase of money supply. Previous researches found a positive relationship between the total of money supply and inflation. In its effort of stabilizing price and inflation, Bank Indonesia uses interest rate transmission mechanism of monetary policy. Interest rate was selected because it concerns more about price in financial market for real market economic activities. In addition, any increase in money supply can enhance economic growth. The objectives of this study are to analyze the relationship between cashless society and inflation through interest rate transmission mechanism of monetary policy and to analyze economic growth in from the perspective of Islam. The instruments of cashless society used in this study are Bank Indonesia’s Real Time Gross Settlement value, Bank Indonesia’s National Clearing System value, and card payment growth. Interest rate transmission mechanism of monetary policy uses the yields of Bank Indonesia Certificates Sharia, Islamic Interbank Money Market, Third Party Funds, financing, consumption, and GDP to measure economic growth. Using VECM, this study finds that cashless society does not directly affect inflation. However, it can affect interest rate transmission mechanism of monetary policy and GDP. In Islam, the use of non-cash money is regulated similarly to the use of cash money, and sharia principles have been used in the monetary policy