The foundation of a nation's monetary policy is determined by the components of its money supply. The advent of technological advancements in the banking industry has led to the development of digital payment methods that serve as substitutes for the currency in circulation. The proliferation of digital payment methods has an impact on real money demand, thereby disturbing the money supply-demand equilibrium of the country. The current study made an effort to evaluate the factors that affect the real money demand in India, taking into account the use of digital payment methods like NEFT, debit cards, and credit cards, as well as macroeconomic variables like GDP, the exchange rate, and price level. The study used secondary time series data from the RBI database for the period from 2005–06 to 2020–21. The linear regression model was used to estimate the real money demand function, and it was found that income, exchange rate, and NEFT transactions positively influenced real money demand. Debit cards had a negative impact on the real money demand, concluding that an increase in the value of debit card transactions caused a decline in the real money demand. The study’s findings will help the RBI to enable methods to incorporate digital payment instruments in the components of the money supply, thereby maintaining a stable money demand function.

1. Adil M. H. Haider S. & Hatekar N. R. (2018). Revisiting money demand stability in India: Some post-reform evidence (1996–2016).The Indian Economic Journal,66(3–4),326–346. https://doi.org/10.1177/0019466220938930
2. Adil M. H. Haider S. & Hatekar N. R. (2020). Empirical assessment of money demand stability under India's open economy: Non-linear ARDL approach. Journal of Quantitative Economics, 18, 891–909. https://doi.org/10.1007/s40953-020-00203-1
3. Aggarwal S. (2016). Determinants of money demand for India in presence of structural break: An empirical analysis. Business and Economic Horizons (BEH),12 (1232-2017-2397),173–177. http://dx.doi.org/10.22004/ag.econ.264618
4. Ajide F. M. (2016). Financial innovation and sustainable development in selected countries in West Africa. Journal of Entrepreneurship, Management and Innovation, 12(3), 85–112. https://doi.org/10.7341/20161234
5. Bedarkar M. Gopalkrishnan S. & Khairnar K. (2016). Indian twin deficits: The role of inflation and money supply. Indian Journal of Finance, 10(2), 7–23. https://doi.org/10.17010/ijf/2016/v10i2/87231
6. Bharadwaj M. B. & Pandit V. (2010). Policy reforms and stability of the money demand function in India. Margin: The Journal of Applied Economic Research,4(1),25–47. https://doi.org/10.1177/097380100900400102
7. Chen Y. (2016). Spatial autocorrelation approaches to testing residuals from least squares regression. PLoS ONE, 11(1), e0146865. https://doi.org/10.1371/journal.pone.0146865
8. Dunne J. P. & Kasekende E. (2018). Financial innovation and money demand: Evidence from Sub‐Saharan Africa. South African Journal of Economics, 86(4), 428–448. https://doi.org/10.1111/saje.12205
9. Hye Q. M. (2009). Financial innovation and demand for money in Pakistan. The Asian Economic Review, 51(2), 219–228.
10. Inoue T. & Hamori S. (2009). An empirical analysis of the money demand function in India. Economics Bulletin, 29(2), 1224–1245. http://www.accessecon.com/pubs/eb/2009/volume29/eb-09-v29-i2-p69.pdf
11. Kakkad S. A. & Jadhav H. V. (2021). A detailed analysis of selected digital payment systems in India. Arthshastra Indian Journal of Economics & Research,10(1),41–58. https://doi.org/10.17010/aijer/2021/v10i1/155366
12. Padhan P. C. (2011). Stability of demand for money in India: Evidence from monetary and liquidity aggregates. International Journal of Economics and Finance,3(1),271–282. https://doi.org/10.5539/ijef.v3n1p271
13. Patel B. & Amin, U. (2012). Plastic money: Roadmay towards cash less society. Paripex Indian Journal of Research, 1(11), 95–99. https://tinyurl.com/bdd7334a
14. Patil S. (2014). Impact of plastic money on banking trends in India. International Journal of Management Research and Business Strategy, 3(1), 224–236.
15. Rauf S. A. & Khan M. S. (2012). The effect of financial innovation on cash demand. Journal of Business & Economics, 4(1), 89–105. https://tinyurl.com/bdcvxw3v Reserve Bank of India, Database on Indian Economy. (n.d.). Data on financial innovations and macroeconomic aggregates. http://dbie.rbi.org.in/DBIE/dbie.rbi?site=publications
16. Saxena S. P. & Bhadauriya S. (2013). Co-integration analysis of the determinants of inflation in India. Arthshastra Indian Journal of Economics & Research, 2(2), 4–12. https://doi.org/10.17010/aijer/2013/v2i2/54507
17. Shukla U. N. (2017). An empirical study on future of mobile - wallets in India: A gateway for cashless payments. Arthshastra Indian Journal of Economics & Research,6(6),51–62. https://doi.org/10.17010/aijer/2017/v6i6/120117
18. Singh A. K. Goel S. K. Shrivastav R. K. & Chahar K. (2021). Linkages between credit cards and consumers' impulsive buying behavior: An empirical analysis. Arthshastra Indian Journal of Economics & Research, 10(4), 8–23. https://doi.org/10.17010/aijer/2021/v10i4/168221
19. Singh P. & Pandey M. K. (2010). Financial innovation and stability of money demand function in post–reform period in India. Economics Bulletin, 30(4), 2895–2905. https://core.ac.uk/download/pdf/6372198.pdf
20. Sircar S. & Goel S. (2015). Monetary policy of Reserve Bank of India: Role of bank lending. Arthshastra Indian Journal of Economics & Research, 4(3), 33–41. https://doi.org/10.17010/aijer/2015/v4i3/71378