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The paradox of banknotes: Understanding the demand for cash beyond transactional use

Author

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  • Zamora-Pérez, Alejandro

Abstract

What explains the strong growth of euro banknote demand, given that the transactional use of banknotes seems to have decreased? Key to explaining this phenomenon – referred to as the “paradox of banknotes” – is acknowledgement of the importance of all three components of banknote demand: euro area transactional demand, euro area store-of-value demand and foreign demand. This article explains these components and estimates their relative size. It also addresses COVID-19-related banknote developments during 2020, highlighting the importance of cash during crises. JEL Classification: E41, E51, E58

Suggested Citation

  • Zamora-Pérez, Alejandro, 2021. "The paradox of banknotes: Understanding the demand for cash beyond transactional use," Economic Bulletin Articles, European Central Bank, vol. 2.
    • Handle: RePEc:ecb:ecbart:2021:0002:3
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    File URL: https://www.ecb.europa.eu//pub/economic-bulletin/articles/2021/html/ecb.ebart202102_03~58cc4e1b97.en.html
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    Cited by:

    1. Noll, Franklin & Lipkin, Andrei, 2021. "Smart Banknotes and Cryptobanknotes: Hybrid Banknotes for Central Bank Digital Currencies and Cryptocurrency Payments," MPRA Paper 110887, University Library of Munich, Germany.

    More about this item

    Keywords

    banknotes; cash; Euro; foreign demand for money; payments; store of value;
    All these keywords.

    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
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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