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Cash Management and Payment Choices: A Simulation Model with International Comparisons

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  • Carlos Arango
  • Yassine Bouhdaouiz
  • David Bounie
  • Martina Eschelbach
  • Lola Hernández

Abstract

Despite various payment innovations, today, cash is still heavily used to pay for low-value purchases. This paper develops a simulation model to test whether standard implications of the theory on cash management and payment choices can explain the use of payment instruments by transaction size. In particular, using diary survey data from Canada, France, Germany and the Netherlands, we test the assumption that cash is still the most e cient payment instrument, and the idea that people hold cash for precautionary reasons when facing uncertainty about their future purchases. The results of the simulations show that these two factors are signicant determinants of the high shares of low-value cash payments in Canada, France and Germany. Yet, they are not so crucial in the Netherlands, which exhibits a signicant share of low-value card transactions. We discuss how the dierences in payment markets across countries may explain the performance of the model.

Suggested Citation

  • Carlos Arango & Yassine Bouhdaouiz & David Bounie & Martina Eschelbach & Lola Hernández, 2014. "Cash Management and Payment Choices: A Simulation Model with International Comparisons," Borradores de Economia 804, Banco de la Republica de Colombia.
  • Handle: RePEc:bdr:borrec:804
    DOI: 10.32468/be.804
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    Cited by:

    1. John Bagnall & David Bounie & Kim P. Huynh & Anneke Kosse & Tobias Schmidt & Scott Schuh, 2016. "Consumer Cash Usage: A Cross-Country Comparison with Payment Diary Survey Data," International Journal of Central Banking, International Journal of Central Banking, vol. 12(4), pages 1-61, December.
    2. Carlos A. Arango-Arango & Nicolás F. Suárez-Ariza & Sergio H. Garrido-Mejía, 2016. "¿Cómo pagan los colombianos y por qué?," Coyuntura Económica, Fedesarrollo, vol. 46(2), pages 141-167, December.
    3. Carlos A. Arango-Arango & Héctor M. Zárate-Solano & Nicolás F. Suárez-Ariza, 2017. "Determinantes del Acceso, Uso y Aceptación de Pagos Electrónicos en Colombia," Borradores de Economia 999, Banco de la Republica de Colombia.
    4. Éric Darmon & Laetitia Chaix & Dominique Torre, 2016. "M-payment use and remittances in developing countries: a theoretical analysis," Revue d'économie industrielle, De Boeck Université, vol. 0(4), pages 159-183.
    5. Carin van der Cruijsen & Lola Hernandez & Nicole Jonker, 2017. "In love with the debit card but still married to cash," Applied Economics, Taylor & Francis Journals, vol. 49(30), pages 2989-3004, June.
    6. Maixe-Altes, J. Carles & Mourelle, Estefanía, 2016. "Cash and non-cash payments in a long run perspective, Spain 1989-2014," MPRA Paper 72590, University Library of Munich, Germany.
    7. Torre Dominique & Eric Darmon & Laetitia Chaix, 2016. "M-payment use and remittances in developing countries: a theoretical analysis," Post-Print halshs-01576774, HAL.
    8. Egor Krivosheya & Polina Belyakova, 2019. "Financial innovations role in consumer behavior at Russian retail payments market," Proceedings of Economics and Finance Conferences 9511955, International Institute of Social and Economic Sciences.
    9. Tobias Trütsch, 2016. "The impact of mobile payment on payment choice," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 30(3), pages 299-336, August.

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    More about this item

    Keywords

    Cash management; Payment Choices.;

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications

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