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Cash Versus Card: Payment Discontinuities and the Burden of Holding Coins

Author

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  • Heng Chen
  • Kim Huynh
  • Oz Shy

Abstract

Cash is the preferred method of payment for small value transactions generally less than $25. We provide insight to this finding with a new theoretical model that characterizes and compares consumers’ costs of paying with cash to paying with cards for each transaction. Our novel method accounts for how much change is received in the form of banknotes and metal coins, assuming that the weight and size of coins are inconvenient to carry. We use the regression discontinuity design (RDD) approach to estimate the model using the 2013 Bank of Canada Method-of-Payments (MOP) Survey and find a significant number of cash users who switch to paying with debit or credit cards at transaction values marginally above $5 and $10. We attribute this finding to the burden of receiving coins as change associated with the currency denomination structure. Our proposed methodology is general and can be applied to other countries and institutional details.

Suggested Citation

  • Heng Chen & Kim Huynh & Oz Shy, 2017. "Cash Versus Card: Payment Discontinuities and the Burden of Holding Coins," Staff Working Papers 17-47, Bank of Canada.
    • Handle: RePEc:bca:bocawp:17-47
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    Cited by:

    1. Snir, Avichai & Chen, Haipeng (Allan) & Levy, Daniel, 2022. "Zero-Ending Prices, Cognitive Convenience, and Price Rigidity," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, issue Forthcomi, pages 1-39.
    2. Shy, Oz, 2020. "How currency denomination and the ATM affect the way we pay," Journal of Economics and Business, Elsevier, vol. 111(C).
    3. Geneviève Vallée, 2018. "How Long Does It Take You to Pay? A Duration Study of Canadian Retail Transaction Payment Times," Staff Working Papers 18-46, Bank of Canada.
    4. Claire Greene & Oz Shy, 2020. "How Consumers Get Cash: Evidence from a Diary Survey," Consumer Payments Research Data Reports 2019-1, Federal Reserve Bank of Atlanta.
    5. Prescott, Brian C. & Shy, Oz, 2023. "Cash payments and the penny policy debate," Journal of Economic Behavior & Organization, Elsevier, vol. 208(C), pages 80-94.
    6. Garín, Julio & Lastrapes, William D. & Lester, Robert, 2021. "On the welfare effects of phasing out paper currency," European Economic Review, Elsevier, vol. 137(C).
    7. Martin Hauptfleisch, 2019. "Financial Decision-Making Using Data," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 6-2019.
    8. Christopher Henry & Doina Rusu & Matthew Shimoda, 2024. "2022 Methods-of-Payment Survey Report: Cash Use Over 13 Years," Discussion Papers 2024-01, Bank of Canada.
    9. ETTIS Saïd Aboubaker & ELDABET Mahmoud Mohamed, 2022. "The Move Towards Cashless Society: How To Improve Consumers’ Use Of Bank Cards In Retail Stores?," Studies in Business and Economics, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 17(1), pages 24-10, April.
    10. Ardvin Kester S. Ong & Yogi Tri Prasetyo & Kerr Lorenzo Picazo & Kim Aaron Salvador & Bobby Ardiansyah Miraja & Yoshiki B. Kurata & Thanatorn Chuenyindee & Reny Nadlifatin & Anak Agung Ngurah Perwira , 2021. "Gym-Goers Preference Analysis of Fitness Centers during the COVID-19 Pandemic: A Conjoint Analysis Approach for Business Sustainability," Sustainability, MDPI, vol. 13(18), pages 1-17, September.
    11. Hiroshi Fujiki, 2023. "Attributes needed for Japan’s central bank digital currency," The Japanese Economic Review, Springer, vol. 74(1), pages 117-175, January.
    12. de Blanes Sebastián, María García & Antonovica, Arta & Sarmiento Guede, José Ramón, 2023. "What are the leading factors for using Spanish peer-to-peer mobile payment platform Bizum? The applied analysis of the UTAUT2 model," Technological Forecasting and Social Change, Elsevier, vol. 187(C).
    13. Aurazo, Jose & Vega, Milton, 2021. "Why people use digital payments: Evidence from micro data in Peru," Latin American Journal of Central Banking (previously Monetaria), Elsevier, vol. 2(4).

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    More about this item

    Keywords

    Bank notes; Econometric and statistical methods;

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System

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