Cash in Circulation (CIC) and Digital transformation in Egypt

Abstract

This study explores the impact of digital transformation on cash in circulation (CIC) in Egypt between 2004 and 2023, examining how advancements in electronic payment systems, mobile banking, and fintech innovation have influenced the demand for physical currency. The study is anchored in a comprehensive econometric analysis, utilizing Vector Error Correction Models (VECM) to capture both the short-term and long-term dynamics between CIC and key macroeconomic variables, including GDP per capita, inflation, interest rates, and points of sale (POS) as a proxy for digital payment infrastructure. The findings indicate a significant long-term relationship between digital transformation and a reduction in cash circulation, particularly driven by the expansion of POS systems. However, the study also reveals short-term fluctuations in cash demand, influenced by interest rates and economic conditions. Despite the growing adoption of digital payments, cash remains resilient, especially during periods of economic uncertainty. This study concludes that while digital transformation is reshaping Egypt’s financial landscape, cash continues to play a crucial role in the economy.