The Effect of Digital Payments on Currency in Circulation Mediated by Digital Financial Inclusion

Abstract

The rapid growth of digital payment systems has transformed Indonesia’s payment behavior; however, currency in circulation remains substantial despite the increasing adoption of cashless instruments. This study aims to examine the effect of digital payments, represented by Quick Response Code Indonesian Standard (QRIS), electronic money, and card-based payment instruments (APMK), on currency in circulation, both directly and indirectly through Digital Financial Inclusion as a mediating variable. This study employs a quantitative approach with a causal associative design using monthly time-series data from January 2020 to December 2025, consisting of 72 observations obtained from Bank Indonesia publications. The data were analyzed using the Autoregressive Distributed Lag (ARDL) model, Error Correction Model (ECM), and Sobel test to evaluate short-term, long-term, and mediation relationships. The results indicate that QRIS and electronic money significantly strengthen Digital Financial Inclusion in the long term, while APMK has a weaker contribution. However, Digital Financial Inclusion does not significantly mediate the relationship between digital payment instruments and currency in circulation. Electronic money shows a positive and significant long-term effect on currency circulation, indicating that digital payments have not replaced cash but continue to coexist within the payment ecosystem. The study concludes that Indonesia remains in a complementary cashless society phase, where digital payment development advances alongside the continued role of physical currency.