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Debit card and cash usage: a cross-country analysis

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Author Info

  • Eugene Amromin
  • Sujit Chakravorti

Abstract

During the last decade, debit card transactions grew rapidly in most advanced countries. While check usage declined and has almost disappeared in some countries, the stock of currency in circulation has not declined as fast. We use panel estimation techniques to analyze the change in transactional demand for cash resulting from greater usage of debit cards in 13 countries from 1988 to 2003. We are able to disentangle cash’s store of value function from its payment function by separating cash into three denomination categories. We find that the demand for low denomination notes and coins decreases as debit card usage increases because merchants need to make less change for customer purchases. On the other hand, the demand for high denomination notes is generally less affected suggesting that these denomination notes are also used for non-transactional purposes.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Chicago in its series Working Paper Series with number WP-07-04.

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Date of creation: 2007
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Handle: RePEc:fip:fedhwp:wp-07-04

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Keywords: Debit cards ; Cash flow ; Payment systems;

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References

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Citations

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Cited by:
  1. Docherty, Peter & Wang, Gehong, 2010. "Using synthetic data to evaluate the impact of RTGS on systemic risk in the Australian payments system," Journal of Financial Stability, Elsevier, vol. 6(2), pages 103-117, June.
  2. Jan Cimburek & Pavel Řežábek, 2013. "Currency in Circulation: Reaction in Crises," Český finanční a účetní časopis, University of Economics, Prague, vol. 2013(3).
  3. Hiroshi Fujiki & Migiwa Tanaka, 2009. "Demand for Currency, New Technology and the Adoption of Electronic Money: Evidence Using Individual Household Data," IMES Discussion Paper Series 09-E-27, Institute for Monetary and Economic Studies, Bank of Japan.
  4. Kopsakangas-Savolainen, Maria & Takalo, Tuomas, 2012. "Competition before sunset: The case of the Finnish ATM market," Research Discussion Papers 32/2012, Bank of Finland.
  5. Schuh, Scott & Stavins, Joanna, 2010. "Why are (some) consumers (finally) writing fewer checks? The role of payment characteristics," Journal of Banking & Finance, Elsevier, vol. 34(8), pages 1745-1758, August.

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