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Cash management and payment choices: a simulation model with international comparisons

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  • Arango, Carlos
  • Bouhdaoui, Yassine
  • Bounie, David
  • Eschelbach, Martina
  • Hernandez, Lola

Abstract

Despite various payment innovations, today, cash is still heavily used to pay for low-value purchases. This paper proposes a simulation model based on two optimal cash management and payment policies in the payments economics literature to explain cash usage. First, cash is preferred to other payment instruments whenever consumers have enough balances at hand. Second, it is optimal for consumers to hold a stock of cash for precautionary reasons. Exploiting survey payment diaries from Canada, France, Germany and the Netherlands, the results of the simulations show that both optimal policies are well suited to understand the high shares of low-value cash payments in Canada, France and Germany. Yet, they do not perform as well in the case of the Netherlands, overestimating the share of low-value cash payments. We discuss how the differences in payment markets across countries may explain the limitations of the two optimal policies.

Suggested Citation

  • Arango, Carlos & Bouhdaoui, Yassine & Bounie, David & Eschelbach, Martina & Hernandez, Lola, 2015. "Cash management and payment choices: a simulation model with international comparisons," Research Discussion Papers 22/2015, Bank of Finland.
  • Handle: RePEc:bof:bofrdp:2015_022
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    References listed on IDEAS

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    Cited by:

    1. 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.
    2. 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.
    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. 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.
    5. Carlos A. Arango-Arango & Nicolás F. Suárez-Ariza & Sergio H. Garrido-Mejía, 2017. "¿Cómo pagan los colombianos y por qué?," Borradores de Economia 991, Banco de la Republica de Colombia.
    6. 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.
    7. 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.
    8. 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

    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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