Research On The Influence Of Electronic Money Upon Inflation In China

Looking at the history of money development, its form has gone through the physical currency, metal currency, banknotes in different stages. Since the1990s, with the development of electronics information and communication technology, both of currency type and traditional payment system are becoming electronic. Historically, since banknotes replaced gold as a payment tool, there comes the inflation or deflation, would the fact that electronic money instead of banknotes have some impact on inflation? This paper will analyze the influence of E-money on inflation through a combination of theoretical and empirical methods from the perspective of electronic money. On one hand, combined with the model of the money supply, money demand theory and Fisher equation, to analyze the impact of E-money on inflation from the theoretical aspects. On the other hand, this paper will select the corresponding variables based on the theory analysis to establish the empirical analysis. Through the analysis we can get the following conclusions. Firstly, the development of electronic money makes money supply and money demand shrink enlarge, making the growth rate of the price level be amplified, so the electronic money has some amplification effects on inflation. Secondly, it’s not easy to adjust the money supply and output in the short term, then according to the Fisher equation MV=PY, changes in money velocity will cause the price level change as well. It’s means that the money velocity will accelerate the formation of inflation in the short term, so the development of electronic money has some acceleration effects on inflation. Finally, through the analysis of empirical results obtained, we can see that the money supply, money velocity and utilization of E-money have the same changing direction with the price level. It suggests that the development of electronic money is correlated with inflation, and has amplification effect and acceleration effects on inflation. With the improvement of electronic information technology and financial innovation, the development of electronic money will continue and its impact on inflation will be more significant.