Dynamic Model of Digital Money Circulation in Indonesia Dual Economic System

Background: Bank Indonesia has undertaken pilot projects for Digital Rupiah, known as w-Digital Rupiah and r-Digital Rupiah. Purpose: This study aims to analyze the dynamic causal relationship model of digital money in Indonesia as the effect of implementing a dual economic system. Method: Vector Autoregressive (VAR), Vector Error Correction model including Granger Causality Test, Impulse Response Function and Variance Decomposition. Results: The results indicate that the circulation of digital money is cointegrated and has a long-term causal relationship with economic growth, with a long-term balance adjustment speed of 24.22%. There is a positive response from Digital Money to Economic Growth shocks, with a response time of one month. However, there is no cointegration or causal relationship to the profit loss-sharing rate. Practical implications: The results suggest that monetary authorities should consider Islamic banks when implementing monetary policy in Indonesia.