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Cash demand of the Hungarian economy – is the shadow economy still running smoothly?

Author

Listed:
  • Rita Odorán

    () (Magyar Nemzeti Bank (central bank of Hungary))

  • Balázs Sisak

    () (Magyar Nemzeti Bank (central bank of Hungary))

Abstract

In international comparison the cash demand of the Hungarian economy is high and has increased over the last two years in a manner not related to the fundamentals of the economy. We have identified two factors which may have contributed to this process. The introduction of the tax on interest in 2006 points towards increasing cash demand given the one-off change of the opportunity cost of cash, and the increased tax burdens introduced in order to reduce the budget deficit as well as other austerity measures of the tax authority also increase cash demand through the presumed expansion of the shadow economy’s cash requirement. In addition, the high cash demand characterising the Hungarian economy may also be explained by the fact that in international comparison Hungary lags behind in the use of cashless payment instruments. High cash usage is unfavourable for the whole economy from several aspects. Our article emphasizes that while in developed countries one may find several examples of measures aimed at restricting the cash usage, in Hungary we have seen only failed attempts so far.

Suggested Citation

  • Rita Odorán & Balázs Sisak, 2008. "Cash demand of the Hungarian economy – is the shadow economy still running smoothly?," MNB Bulletin (discontinued), Magyar Nemzeti Bank (Central Bank of Hungary), vol. 3(3), pages 19-25, December.
  • Handle: RePEc:mnb:bullet:v:3:y:2008:i:3:p:19-25
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    File URL: http://www.mnb.hu/letoltes/mnb-bull-2008-12-rita-odoran-balazs-sisak-en.pdf
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    References listed on IDEAS

    as
    1. Seitz, Franz & Fischer, Björn & Köhler, Petra, 2004. "The demand for euro area currencies: past, present and future," Working Paper Series 330, European Central Bank.
    2. Peter Mooslechner & Helmut Stix & Karin Wagner, 2006. "How Are Payments Made in Austria?," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 2, pages 111-134.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Zita Véber & Judit Brosch, 2013. "Can cash payment be limited in a modern payment system?," MNB Bulletin (discontinued), Magyar Nemzeti Bank (Central Bank of Hungary), vol. 8(1), pages 52-61, January.

    More about this item

    Keywords

    high cash demand; cash usage; Hungary; shadow economy.;

    JEL classification:

    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy

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