Impact of e-money on money supply: Estimation and policy implication for Bangladesh

Ahmed Mehedi Nizam

PLOS ONE, 2022, vol. 17, issue 4, 1-18

Abstract: With the rapid proliferation of mobile telephony and the establishment of an IT-enabled payment and settlement system, Bangladesh nowadays is experiencing a remarkable growth in the usage of mobile financial services (MFS). As more and more people are opting to use this service, a huge number of mobile accounts are opened every day and a substantial amount of money is deposited, withdrawn and transferred frequently through the mobile network. This ever-increasing amount of mobile money flowing through the network may have a sizeable impact on the overall money supply of the country. Thus far, no systematic study has been conducted to quantify the impact of the mobile money on the conventional money supply of Bangladesh. In this study, we attempt to quantify the contribution of mobile money on the money supply which is an important quantity-based nominal anchor of monetary policy in Bangladesh. Apart from deriving algebraic relationships between money supply and e-money, here we have empirically shown that during the 03 years span of 2018-2021, MFS transactions account for nearly 10.88% and 11.29% of total narrow and broad money supply of Bangladesh as on January 2021. Besides, we also qualitatively discuss the impact of e-money on an important price-based nominal anchor of monetary policy in Bangladesh, i.e., interest rate. Based upon the above discussion, here we argue that MFS can act as an effective tool to slash interest rate by a reasonable proportion through adding significantly to the overall supply of money in Bangladesh.

Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:plo:pone00:0267595

DOI: 10.1371/journal.pone.0267595

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