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Digital Payments Adoption and the Demand for Cash: New International Evidence

Author

Listed:
  • Carlos A. Arango-Arango

    (Banco de la República de Colombia)

  • Nicolás F. Suárez-Ariza

    (Banco de la República de Colombia)

Abstract

Even though the levels and growth rates of adoption of digital payments have reached significant figures in the recent past, the demand for cash continues to grow in both developed and developing economies across the world. This puzzle has found only partial explanations in the previous empirical literature. We bring further and more conclusive evidence that the adoption of digital payments indeed reduces the demand for cash. Yet, economic growth and lower interest rates as well as positive trends in the demand for large denomination banknotes, not explained by traditional factors, still dominate the overall growth in the demand for cash. **** RESUMEN: Aun cuando los niveles y tasas de crecimiento de la adopción de pagos digitales han alcanzado valores signicativos en el pasado reciente, la demanda por efectivo continua creciente tanto en economías desarrolladas como en desarrollo alrededor del mundo. Este acertijo solo ha encontrado explicaciones parciales en la literatura previa. Nosotros proveemos evidencia adicional y más concluyente de que la adopción de pagos digitales reduce la demanda por efectivo. Sin embargo, el crecimiento económico y las menores tasas de interés, así como las tendencias positivas en la demanda por billetes de alta denominación, no explicadas por variables tradicionales, aun dominan el crecimiento agregado en la demanda de efectivo.

Suggested Citation

  • Carlos A. Arango-Arango & Nicolás F. Suárez-Ariza, 2019. "Digital Payments Adoption and the Demand for Cash: New International Evidence," Borradores de Economia 1074, Banco de la Republica de Colombia.
    • Handle: RePEc:bdr:borrec:1074
    DOI: 10.32468/be.1074.pdf?sequence=10&isAllowed=y
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    References listed on IDEAS

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    Cited by:

    1. Justus Meyer & Federica Teppa, 2023. "Euro area consumers' payment behaviour and banking digitalisation," Working Papers 772, DNB.
    2. Khando Khando & M. Sirajul Islam & Shang Gao, 2022. "The Emerging Technologies of Digital Payments and Associated Challenges: A Systematic Literature Review," Future Internet, MDPI, vol. 15(1), pages 1-21, December.
    3. Rösl, Gerhard & Seitz, Franz, 2021. "Cash and crises: No surprises by the virus," IMFS Working Paper Series 150, Goethe University Frankfurt, Institute for Monetary and Financial Stability (IMFS).
    4. Bank for International Settlements, 2020. "The dawn of fintech in Latin America: landscape, prospects and challenges," BIS Papers, Bank for International Settlements, number 112.
    5. José Bran-Guevara & Luisa Fernanda Hernández-Ávila & Daniela McAllister-Harker, 2022. "Servicios Financieros Digitales en Colombia: Una caracterización y análisis de riesgos potenciales," Borradores de Economia 1193, Banco de la Republica de Colombia.
    6. Antón, Arturo & Hernández-Trillo, Fausto & Ventosa-Santaulària, Daniel, 2021. "(In)Effective tax enforcement and demand for cash," Journal of Macroeconomics, Elsevier, vol. 70(C).

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    More about this item

    Keywords

    money demand; digital payments; cash; denominational structure; panel data; demanda de dinero; pagos digitales; efectivo; estructura denominacional; datos panel;
    All these keywords.

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • 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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