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Cash management and choice of payment media: a critical survey of the theory

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  • C.K. Folkertsma
  • G.E. Hebbink

Abstract

This report addresses the question whether economic theory can explain the choice of payment media for over-the-counter payments. A survey of the literature reveals that most of the existing microeconomic models are limited to the explanation of the size of cash balance. Only two models describe the optimal choice between different modes of payment such as cash payment, payment by electronic money and debitcard payment. One of these approaches has been extended in this report, in order to study the effects on transaction balances and optimal mode of payment, for exmple, caused by interest rate changes or the introduction of new payment media.

Suggested Citation

  • C.K. Folkertsma & G.E. Hebbink, 1998. "Cash management and choice of payment media: a critical survey of the theory," WO Research Memoranda (discontinued) 532, Netherlands Central Bank, Research Department.
  • Handle: RePEc:dnb:wormem:532
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    File URL: https://www.dnb.nl/binaries/wo0532_eng_tcm46-145875.pdf
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    References listed on IDEAS

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    7. Humphrey, David B & Pulley, Lawrence B & Vesala, Jukka M, 1996. "Cash, Paper, and Electronic Payments: A Cross-Country Analysis," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(4), pages 914-939, November.
    8. Whitesell, William C, 1992. "Deposit Banks and the Market for Payment Media," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 24(4), pages 483-498, November.
    9. Svensson, Lars E O, 1985. "Money and Asset Prices in a Cash-in-Advance Economy," Journal of Political Economy, University of Chicago Press, vol. 93(5), pages 919-944, October.
    10. Edward L. Whalen, 1966. "A Rationalization of the Precautionary Demand for Cash," The Quarterly Journal of Economics, Oxford University Press, vol. 80(2), pages 314-324.
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    Cited by:

    1. Pippow Ingo & Schoder Detlef, 2002. "The Demand for Stored Value Payment Instruments," Microeconomics 0204002, University Library of Munich, Germany.
    2. Yassine Bouhdaoui & David Bounie, 2012. "Modeling the Share of Cash Payments in the Economy: An Application to France," International Journal of Central Banking, International Journal of Central Banking, vol. 8(4), pages 175-195, December.
    3. Hebbink, Gerbert & Peeters, Marga, 1999. "The circulation of euro banknotes and coins in the Netherlands," MPRA Paper 23535, University Library of Munich, Germany.
    4. Kabelac, Gabriele, 1999. "Cyber money as a medium of exchange," Discussion Paper Series 1: Economic Studies 1999,05e, Deutsche Bundesbank.

    More about this item

    Keywords

    cash management; demand for money; payments behaviour;

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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