Digital payments and monetary policy transmission in Indonesia: an Islamic economic perspective

Pantas, Pribawa E and Othman, Norfaizah and Yunus, Mawar Murni and Mohamad Puad, Noor Aimi (2026) Digital payments and monetary policy transmission in Indonesia: an Islamic economic perspective. International Journal of Islamic Studies and Humanities, 9 (1). pp. 11-20. ISSN 2614-3836 E-ISSN 2615-7403

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Abstract

This study investigates whether the rapid expansion of digital payment systems reshapes the transmission of monetary policy in Indonesia, incorporating an Islamic economic perspective. Using monthly data from 2018M01 to 2024M12, this study employs the Autoregressive Distributed Lag (ARDL) model, along with impulse response function (IRF) and dynamic multiplier analyses, to capture both equilibrium and dynamic effects. The results reveal that cashless transactions significantly reduce inflation, indicating improved transaction efficiency and lower price rigidities. Moreover, the interaction between digital payments and policy interest rates strengthens the transmission mechanism, suggesting that financial digitalisation acts as a transmission accelerator. Islamic financial development is also found to contribute to inflation stability, reflecting the role of risk-sharing and asset-backed financing in reducing speculative pressures. The dynamic analyses confirm that the disinflationary effect of digital payments is persistent and stabilises in the long run. This study contributes to the literature by integrating digital finance and Islamic finance into a unified macroeconomic framework, offering new insights into the evolving structure of monetary transmission in emerging economies.

Item Type:	Article (Journal)
Uncontrolled Keywords:	Digital payments, Monetary policy transmission, Islamic finance, Inflation stability, ARDL
Subjects:	BPH Islamic Economics BPH Islamic Economics > BPH72 Economic development. Growth. Sustainable development. Sustainability
Kulliyyahs/Centres/Divisions/Institutes (Can select more than one option. Press CONTROL button):	Kulliyyah of Economics and Management Sciences > Department of Finance Kulliyyah of Economics and Management Sciences
Depositing User:	DR NOOR AIMI MOHAMAD PUAD
Date Deposited:	25 Jun 2026 16:45
Last Modified:	25 Jun 2026 16:45
Queue Number:	2026-06-Q3696
URI:	http://irep.iium.edu.my/id/eprint/129319

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