Volume 30, Issue 4 (Winter 2026)                   JEPR 2026, 30(4): 221-250 | Back to browse issues page

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Khoshnoud Z, Esfandiari M. (2026). The Role of Credit Cards in Money Velocity. JEPR. 30(4), 221-250.
URL: http://eprj.ir/article-1-2304-en.html
The Role of Credit Cards in Money Velocity
Zahra Khoshnoud *1 , Marzieh Esfandiari2
1- Assisstant Professor, Monetary & Banking Research Institute, Tehran, Iran. , z.khoshnoud@mbri.ac.ir
2- Credit Specialist, Supply Chain Finance Department, The Central Bank of Islamic Republic of Iran, Tehran, Iran
Abstract:   (939 Views)
The issuance of credit cards as a payment instrument in the banking sector has increased significantly over the past decade, supported by improvements in the necessary regulatory and operational infrastructures. In addition, the Central Bank’s recent policy of quantitatively controlling banks’ balance sheets, while encouraging the expansion of off-balance-sheet activities, has led banks to increase the supply of credit cards. Consequently, the growing acceptance of credit cards as a means of payment is expected to influence money velocity, with potential implications for inflation and the effectiveness of the Central Bank’s inflation-targeting framework. To investigate this issue, the determinants of money velocity - measured in terms of M0, M1, and M2 - are examined using monthly data from February 2018 to October 2024 and a Vector Error Correction Model (VECM). In addition to the volume of credit card transactions, the model incorporates the interbank interest rate as an indirect monetary policy instrument, along with the market exchange rate, inflation rate, and the total volume of debit card transactions as account-based payment instruments. The results indicate that the expansion of credit card usage during the sample period has exerted a negative long-run effect on different measures of money velocity, suggesting the limited use of credit cards in real transactions. Therefore, by influencing money velocity, the expansion of this payment instrument may pose challenges to the Central Bank’s inflation-targeting policy, which relies on the relative stability of this variable.
Keywords: Money Velocity, Inflation Targeting, Payment Instrument, Credit Card, Cash Card.
Full-Text [PDF 966 kb]   (66 Downloads)    
Type of Study: Research | Subject: Macroeconomics
Received: May 13 2025 | Accepted: Jan 25 2026 | ePublished: Jun 29 2026
References
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16. Amaegberi, M., Ekainsai S. Z., Okonma, M. C. (2022). Cashless policy and velocity of money in Nigeria: A quantitative approach. Wilberforce Journal of the Social Sciences, 7(1), 15-32. [DOI:10.36108/wjss/2202.70.0120]
17. Anggraini, A. (2022). Effect cashless payment on inflation with velocity of money as intervening variable. Balance Jurnal Ekonomi, 18(2), 199-207. [DOI:10.26618/jeb.v18i2.9606]
18. Bernanke, B. S. (2006). Monetary aggregates and monetary policy at the Federal Reserve: a historical perspective, Speech 243, Board of Governors of the Federal Reserve System (U.S.).
19. Chen, Y., (2021). The impact of digital payments on the velocity of money in the Chinese market, Thesis for Master in Economics, Instituto Universitàrio De Lisboa.
20. Fisher, I. (1911). The Purchasing Power of Money, 2nd edition, Macmillan. Co. New York.
21. Humphrey, T. M., The Quantity Theory of Money: Its Historical Evolution and Role in Policy Debates (1974). FRB Richmond Economic Review, Vol. 60, May/June 1974, pp. 2-19, Available at SSRN: https://ssrn.com/abstract=2117542
22. Huljanah, M., Satria, D. (2021). Kemajuan Teknologi Dan Kecepatan Perputaran Uang: Studi Kasus Indonesia. Ecosains. Jurnal Ilmiah Ekonomi dan Pembangunan, 10(1), 10-23. [DOI:10.24036/ecosains.11563257.00]
23. Lothian, J. R. (2009). Milton Friedman's monetary economics and the quantity-theory tradition. Journal of International Money and Finance, 28(7), 1086-1096. [DOI:10.1016/j.jimonfin.2009.06.002]
24. Mill, J. S. (1848). Principles of Political Economy with Some of Their Applications to Social Philosophy. Vol. 1. C.C. Little & J. Brown.
25. Otoakhia, E. I. (2023). Contemporary analysis of velocity of money and payment systems: A descriptive and empirical approach. CBN Bullion. 49(3), 53-66.
26. Putra, H.S., Huljannah, M., Anis, A., & Azhar, Z. (2021). Debit and credit cards: money velocity risks. Jurnal Ekonomi & Studi Pembangunan, 22(2), 228-243. [DOI:10.18196/jesp.v22i2.11208]
27. Roy, J., Rochaida, E., Suharto, R. B., & Rizkiawan, R. (2021). Digital and electronic transactions against velocity of money [Special issue]. Corporate Governance and Organizational Behavior Review, 5(2), 145-155. [DOI:10.22495/cgobrv5i2sip3]
28. Sasikarani, M., Andrian, T. (2022). PENGARUH alat pembayaran dengan menggunakan kartu, dana float dan kebijakan moneter terhadap velocity of money di Indonesia. Jurnal Indonesia Sosial Teknologi, 2022. 3(7), 820-836. Doi:10.36418/jist.v3i7.479 820. [DOI:10.36418/jist.v3i7.479]
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