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Why do people save in cash? Distrust, memories of banking crises, weak institutions and dollarization

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  • Stix, Helmut

Abstract

The paper analyzes why households hold sizeable shares of their assets in cash at home rather than at banks – a phenomenon that is widespread in many economies but for which information is scarce. Using survey data from ten Central, Eastern and Southeastern European countries, I document the relevance of this behavior and show that cash preferences cannot be fully explained by whether people are banked or unbanked. The analysis reveals that a lack of trust in banks, memories of past banking crises and weak tax enforcement are important factors. Moreover, cash preferences are stronger in dollarized economies where a “safe” foreign currency serves as a store of value.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 37 (2013)
Issue (Month): 11 ()
Pages: 4087-4106

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Handle: RePEc:eee:jbfina:v:37:y:2013:i:11:p:4087-4106

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Web page: http://www.elsevier.com/locate/jbf

Related research

Keywords: Cash demand; Cash hoarding; Household finance; Trust in banks; Social capital; Dollarization;

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References

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Cited by:
  1. Doris Ritzberger-Grünwald & Thomas Scheiber, 2012. "Euro Cash in Central, Eastern and Southeastern Europe," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 41–55.
  2. Kari Takala & Matti Viren, 2012. "Why does a Large Shadow Economy not show up in Administrative Inspections?," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, vol. 42(2), pages 257-272, September.
  3. Brown, M. & Haas, R. de & Sokolov, V., 2013. "Regional Inflation and Financial Dollarization," Discussion Paper 2013-073, Tilburg University, Center for Economic Research.
  4. Elisabeth Beckmann & Mariya Hake & Jarmila Urvová, 2013. "Determinants of Households’ Savings in Central, Eastern and Southeastern Europe," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 3, pages 8-29.
  5. Brown, Martin & De Haas, Ralph & Sokolov, Vladimir, . "Regional Inflation and Financial Dollarization," Working Papers on Finance 1327, University of St. Gallen, School of Finance.

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