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Cash Is King: The Role of Financial Infrastructure in Digital Adoption

Author

Listed:
  • Bhavya Aggarwal
  • Nirupama Kulkarni
  • S K Ritadhi

Abstract

This paper examines whether a one-time, extensive, but temporary shock to cash supply can affect the adoption of digital payments. We exploit the 2016 demonetization episode in India, which overnight discontinued 86% of cash in circulation. Using novel administrative data from retail debit card transactions, we identify a 12% increase in digital payments in areas adversely affected by the cash shortage, which persisted well after the restoration of cash supply. Examining mechanisms, we find a limited role for social networks and stronger support for learning by doing. Further, information frictions hinder the immediate adoption of digital payments. (JEL E5, 023)Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Suggested Citation

  • Bhavya Aggarwal & Nirupama Kulkarni & S K Ritadhi, 2023. "Cash Is King: The Role of Financial Infrastructure in Digital Adoption," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 12(4), pages 867-905.
    • Handle: RePEc:oup:rcorpf:v:12:y:2023:i:4:p:867-905.
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    File URL: http://hdl.handle.net/10.1093/rcfs/cfad018
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    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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