ATM networks and cash usage
AbstractThis paper deals with the issue of how the market structure in banking affects the choice of means of payment. In particular, the demand for cash is analysed from this point of view. The analysis is based on a simple spatial transactions model in which the banks’ optimization problem is solved. The solution quite clearly shows that monopoly banks have an incentive to restrict the number of ATMs to a minimum. In general, the number of ATMs depends on competitiveness in the banking sector. The predictions of the theoretical analysis are tested using panel data from 20 OECD countries for the period 1988–2003. Empirical analysis reveals that there is a strong and robust relationship between the number of ATM networks and the number of ATMs (in relation to population). It also reveals that the demand for cash depends both on the number of ATMs and ATM networks and on the popularity of other means of payment. Thus, the use of cash can be fairly well explained in a transaction demand framework, assuming proper controls for market structure and technical environment.
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Bibliographic InfoPaper provided by Bank of Finland in its series Research Discussion Papers with number 21/2006.
Length: 33 pages
Date of creation: 05 Nov 2006
Date of revision:
automated teller machine; demand for cash; banking; means of payment;
Find related papers by JEL classification:
- E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
- E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-12-09 (All new papers)
- NEP-BAN-2006-12-09 (Banking)
- NEP-NET-2006-12-09 (Network Economics)
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