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Background to the High Level of Banknotes in Circulation and Demand Deposits

Author

Listed:
  • Akira Otani

    (Bank of Japan)

  • Takashi Suzuki

    (Bank of Japan)

Abstract

Banknotes and demand deposits have exhibited high growth since the late 1990s, and remain at historically high levels. We examine the background to these developments by using available data such as the volume of banknotes in circulation by denomination and the volume of demand deposits by depositor age. We find the main reason for the growth in banknotes and demand deposits is an increase in "non-transaction demand" for savings and other purposes by the household sector, especially by the elderly. Moreover, as for the outlook, as long as changes in interest rates remain limited, the amounts of banknotes in circulation and demand deposits are likely to remain high because the holding behavior of the elderly will probably remain unchanged. We should note, however, that any changes in the sensitivity of the elderly to interest rates may alter their choice of financial assets.

Suggested Citation

  • Akira Otani & Takashi Suzuki, 2008. "Background to the High Level of Banknotes in Circulation and Demand Deposits," Bank of Japan Review Series 08-E-5, Bank of Japan.
    • Handle: RePEc:boj:bojrev:08-e-5
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    Citations

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    Cited by:

    1. Ryu‐ichiro Murota & Yoshiyasu Ono, 2012. "Zero Nominal Interest Rates, Unemployment, Excess Reserves And Deflation In A Liquidity Trap," Metroeconomica, Wiley Blackwell, vol. 63(2), pages 335-357, May.
    2. Fujiki, Hiroshi & Tanaka, Migiwa, 2017. "Choice of payment instrument for low-value transactions in Japan," International Cash Conference 2017 – War on Cash: Is there a Future for Cash? 162909, Deutsche Bundesbank.
    3. Fujiki, Hiroshi & Tomura, Hajime, 2017. "Fiscal cost to exit quantitative easing: the case of Japan," Japan and the World Economy, Elsevier, vol. 42(C), pages 1-11.
    4. Katrin Assenmacher & Franz Seitz & Jörn Tenhofen, 2019. "The demand for Swiss banknotes: some new evidence," Swiss Journal of Economics and Statistics, Springer;Swiss Society of Economics and Statistics, vol. 155(1), pages 1-22, December.
    5. Rösl, Gerhard & Seitz, Franz, 2021. "Cash and crises: No surprises by the virus," IMFS Working Paper Series 150, Goethe University Frankfurt, Institute for Monetary and Financial Stability (IMFS).
    6. Assenmacher, Katrin & Seitz, Franz & Tenhofen, Jörn, 2017. "The use of large denomination banknotes in Switzerland," International Cash Conference 2017 – War on Cash: Is there a Future for Cash? 162917, Deutsche Bundesbank.
    7. Ryu-ichiro Murota & Yoshiyasu Ono, 2015. "Fiscal Policy under Long-run Stagnation: A New Interpretation of the Multiplier Effect," ISER Discussion Paper 0937, Institute of Social and Economic Research, Osaka University.
    8. Hiroshi Fujiki, 2020. "The use of noncash payment methods for regular payments and the household demand for cash: evidence from Japan," The Japanese Economic Review, Springer, vol. 71(4), pages 719-765, October.
    9. Murota, Ryu-ichiro & Ono, Yoshiyasu, 2015. "Fiscal policy under deflationary gap and long-run stagnation: Reinterpretation of Keynesian multipliers," Economic Modelling, Elsevier, vol. 51(C), pages 596-603.
    10. Hiroshi FUJIKI & Kiyotaka Nakashima, 2019. "Cash Usage Trends in Japan: Evidence Using Aggregate and Household Survey Data," Working Papers e131, Tokyo Center for Economic Research.

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