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Why do people save in cash? Distrust, memories of banking crises, weak institutions and dollarization

  • Stix, Helmut

The paper analyzes why households hold sizeable shares of their assets in cash at home rather than at banks – a phenomenon that is widespread in many economies but for which information is scarce. Using survey data from ten Central, Eastern and Southeastern European countries, I document the relevance of this behavior and show that cash preferences cannot be fully explained by whether people are banked or unbanked. The analysis reveals that a lack of trust in banks, memories of past banking crises and weak tax enforcement are important factors. Moreover, cash preferences are stronger in dollarized economies where a “safe” foreign currency serves as a store of value.

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Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 37 (2013)
Issue (Month): 11 ()
Pages: 4087-4106

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Handle: RePEc:eee:jbfina:v:37:y:2013:i:11:p:4087-4106
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