Velocity of money and inflation in the age of digital financial services: a mixed sampling analysis

Using the Zambian financial system, this study investigates the dynamic relationship between digital payments, velocity of money, and inflation. The study employs a Mixed Frequency Data Sampling (MIDAS) estimation strategy and using monthly and quarterly data ranging from 2013 to 2023, the study establishes that digital payments have a significant positive impact on money velocity. This observation suggests that digital financial systems are accelerating economic transactions in Zambia. In this regard, mobile money is identified as the critical digital payment type driving faster money circulation relative to other forms of payment. Further, the study establishes that the growth of digital payment has a statistically significant influence on inflation in the economy. Given these findings, we recommend that the Bank of Zambia continue modernising its monetary policy toolkits, data systems, and regulatory oversight to ensure that growth of digital finance supports both economic development and macroeconomic stability.