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Developments in Banknotes in Circulation since the Start of the Pandemic

Author

Listed:
  • Kento Yoshizawa

    (Bank of Japan)

  • Kohei Maehashi

    (Bank of Japan)

  • Hiroaki Yanagihara

    (Bank of Japan)

  • Yoichi Kadogawa

    (Bank of Japan)

  • Masakazu Inada

    (Bank of Japan)

Abstract

In recent years, a phenomenon referred to as the gparadox of banknotes h has been observed worldwide: despite reduced opportunities to pay in cash due to the increase in cashless payments such as payment by credit card, the amount of banknotes in circulation has increased. Reasons that have been highlighted include the decline in the opportunity costs of holding cash amid the low interest rate environment as well as increased precautionary demand due to heightened economic uncertainty. Since the onset of the COVID-19 pandemic, this paradox has become more pronounced: cash in circulation has jumped even though opportunities to use cash have dropped sharply due to the economic downturn and the increase in e-commerce due to stay-at-home consumption. Our empirical analysis suggests that public health measures led to a significant increase in cash in circulation, with the effect being greatest immediately after the outbreak of pandemic and waning thereafter. It thus appears that developments in banknotes in circulation have been affected by precautionary demand for cash due to the heightened uncertainty brought about by the pandemic.

Suggested Citation

  • Kento Yoshizawa & Kohei Maehashi & Hiroaki Yanagihara & Yoichi Kadogawa & Masakazu Inada, 2021. "Developments in Banknotes in Circulation since the Start of the Pandemic," Bank of Japan Review Series 21-E-6, Bank of Japan.
    • Handle: RePEc:boj:bojrev:rev21e06
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    File URL: https://www.boj.or.jp/en/research/wps_rev/rev_2021/data/rev21e06.pdf
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    Cited by:

    1. Monetary Affairs Department, 2023. "Central Bank Finances and Monetary Policy Conduct," Bank of Japan Working Paper Series 23-12-12, Bank of Japan.

    More about this item

    Keywords

    Banknotes; Cashless payments; COVID-19;
    All these keywords.

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • 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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