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Substitution of noncash payment instruments for cash in Europe

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Author Info

  • Snellman, Jussi

    ()
    (Bank of Finland Research)

  • Vesala, Jukka
  • Humphrey, David
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    Abstract

    The substitution of noncash (check, giro, and credit and debit card) payments for cash transactions is difficult to gauge because there are no data series on the actual value or volume of cash transactions in any country. However, determining the degree of cash substitution is important because it will negatively affect government seigniorage revenue and, if cash use falls fast enough, may require tax revenues to redeem excess currency holdings. We utilise a novel method for approximating the volume of cash transactions using public information on currency stocks and noncash payments. Applying this method, we estimate how cash has been substituted by other payment instruments in 10 European countries. We also provide a forecast of future cash use by country. We find that the trend in cash substitution across countries is quite similar. However, the countries themselves are at significantly different stages of this substitution process. The spread of debit and credit card payments has been the key factor behind the substitution away from cash as use of e-cash innovation is still in its infancy. Country-specific differences in the substitution process are largely explained by differences in the level of implementation of each country’s card payment technology.

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    File URL: http://www.suomenpankki.fi/en/julkaisut/tutkimukset/keskustelualoitteet/Documents/0001.pdf
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    Bibliographic Info

    Paper provided by Bank of Finland in its series Research Discussion Papers with number 1/2000.

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    Length: 42 pages
    Date of creation: 01 Mar 2000
    Date of revision:
    Handle: RePEc:hhs:bofrdp:2000_001

    Contact details of provider:
    Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
    Web page: http://www.suomenpankki.fi/en/
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    Related research

    Keywords: cash substitution; learning curves; seigniorage;

    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Anthony M. Santomero & John J. Seater, 1996. "Alternative monies and the demand for media of exchange," Proceedings, Board of Governors of the Federal Reserve System (U.S.), pages 942-964.
    2. Meade, Nigel & Islam, Towhidul, 1995. "Forecasting with growth curves: An empirical comparison," International Journal of Forecasting, Elsevier, Elsevier, vol. 11(2), pages 199-215, June.
    3. repec:fth:bfsefi:21/98 is not listed on IDEAS
    4. Shy, Oz & Tarkka, Juha, 1998. "The Market for Electronic Cash Cards," Research Discussion Papers, Bank of Finland 21/1998, Bank of Finland.
    5. Paroush, Jacob & Ruthenberg, David, 1986. "Automated teller machines and the share of demand deposits in the money supply: The Israeli Experience," European Economic Review, Elsevier, Elsevier, vol. 30(6), pages 1207-1215, December.
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    Cited by:
    1. Humphrey, David B. & Vale, Bent, 2004. "Scale economies, bank mergers, and electronic payments: A spline function approach," Journal of Banking & Finance, Elsevier, Elsevier, vol. 28(7), pages 1671-1696, July.
    2. Massimo Cirasino & Mario Guadamillas & José Antonio García & Fernando Montes-Negret, 2007. "Reforming Payments and Securities Settlement Systems in Latin America and the Caribbean," World Bank Publications, The World Bank, number 6630, October.
    3. Snellman , Heli & Virén , Matti, 2006. "ATM networks and cash usage," Research Discussion Papers, Bank of Finland 21/2006, Bank of Finland.
    4. Jyrkönen , Hanna, 2004. "Less cash on the counter: Forecasting Finnish payment preferences," Research Discussion Papers, Bank of Finland 27/2004, Bank of Finland.
    5. Seitz, Franz, 2007. "A simple way to capture transaction balances," Economics Letters, Elsevier, Elsevier, vol. 95(2), pages 230-233, May.
    6. Abel François & David Bounie, 2006. "Les déterminants de la détention et de l’usage des instruments de paiement : éléments théoriques et empiriques," Revue d'Économie Financière, Programme National Persée, Programme National Persée, vol. 83(2), pages 159-176.

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