Abstract: This paper studies the effect of payment by bank card instead of cash in China, and further analyzes the impact of bank card payment on the demand for narrow money. We find that the rapid development of China’s banking card industry in recent years has brought about a sharp increase in the payment by bank card. Given the exponential relationship between bank card payment and cash in circulation, we establish a non-linear model showing the substitution of bank card for cash. Also, the impact of bank card payment on the demand for narrow money is non-linear, and we use non-parametric local polynomial fitting to establish a partially linear regression model. The two models are used for the first time for these studies and prove to be very interpretative.

Key words: font-family: "Times New Roman", mso-font-kerning: 1.0pt, mso-ansi-language: EN-US, mso-bidi-font-size: 12.0pt, mso-fareast-font-family: 宋体, mso-fareast-language: ZH-CN, mso-bidi-language: AR-SA">bfont-family: "Times New Roman", mso-ansi-language: EN-US, mso-fareast-font-family: 宋体, mso-fareast-language: ZH-CN, mso-bidi-language: AR-SA">ank card payment, cash substitution effect, demand for narrow money, non-linear effect