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Less-Cash or More-Cash? Determinants and Trends of Currency in Circulation in a Panel of 17 Economies

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  • Kumar Chandrakamal Pramod Kumar

    (Institute of Economic Studies, Charles University, Prague, Czech Republic)

Abstract

Digital payments are growing rapidly, and the use of cash seems to be declining, at least in advanced economies in Europe and the U.S. However, the literature on payment systems provides an interesting perspective- cash, or currency, when measured as a percentage of the gross domestic product, has not been falling as clearly as might be intuited. Contrarily, many economies face an increase in currency in circulation rates. This paper discusses this topic in literature and explores the determinants of currency in circulation in a panel of 17 countries between 2001-2022 and whether determinants from prior literature are also significant across a group of heterogeneous countries. Interest rates are found to affect the demand for cash significantly and negatively, while tax revenues have a significantly positive impact. Some measures of financial development are also considered but are found to not have any strong explanatory power. Country fixed effects regression analysis suggests that determining what type of economies may have higher or lower currency in circulation is a complex matter requiring more detailed investigation.

Suggested Citation

  • Kumar Chandrakamal Pramod Kumar, 2023. "Less-Cash or More-Cash? Determinants and Trends of Currency in Circulation in a Panel of 17 Economies," Working Papers IES 2023/32, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Oct 2023.
    • Handle: RePEc:fau:wpaper:wp2023_32
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    File URL: https://ies.fsv.cuni.cz/en/research/working-papers/2023-32
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    More about this item

    Keywords

    Currency in circulation; Monetary demand; Panel data; Fixed-effects regression; Interest rates; tax revenue;
    All these keywords.

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • 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

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