Tripartite relationship between cashless economy, money demand, and the long-run stability of money demand function: evidence from Ghana

Abstract Many nations, regardless of their development status, are adopting a cashless economy to enhance economic growth and development. This research aims to examine the effects of a cashless economy on money demand in Ghana, focusing specifically on the roles of automatic teller machines (ATMs) and mobile money (MOMO). It investigates how these two technologies individually affect money demand, their interactive effects, and their influence on the long-term stability of the money demand function. The study employs an error correction model to analyze the impacts of ATM and MOMO on money demand, as well as to assess their interactions. Additionally, CUSUM and CUSUMSQ tests are utilized to evaluate the stability of the money demand function over the long term. Data were collected from the Bank of Ghana's website, covering the period from the first quarter of 2015 to the fourth quarter of 2022. Findings indicate that mobile money negatively influences long-term money demand, though this effect is insignificant in the short term. Conversely, ATMs show a positive long-term effect on money demand but negatively impact it in the short run. Importantly, the study concludes that neither ATM nor MOMO introduces instability into the money demand function. Based on these results, it is recommended that policymakers implement effective measures to promote and regulate the use of cashless instruments, thereby fostering trade and boosting the country's economic development.