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Debit card and cash usage: a cross-country analysis

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  • Eugene Amromin
  • Sujit Chakravorti

Abstract

During the last decade, debit card transactions grew rapidly in most advanced countries. While check usage declined and has almost disappeared in some countries, the stock of currency in circulation has not declined as fast. We use panel estimation techniques to analyze the change in transactional demand for cash resulting from greater usage of debit cards in 13 countries from 1988 to 2003. We are able to disentangle cash’s store of value function from its payment function by separating cash into three denomination categories. We find that the demand for low denomination notes and coins decreases as debit card usage increases because merchants need to make less change for customer purchases. On the other hand, the demand for high denomination notes is generally less affected suggesting that these denomination notes are also used for non-transactional purposes.

Suggested Citation

  • Eugene Amromin & Sujit Chakravorti, 2007. "Debit card and cash usage: a cross-country analysis," Working Paper Series WP-07-04, Federal Reserve Bank of Chicago.
  • Handle: RePEc:fip:fedhwp:wp-07-04
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    References listed on IDEAS

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    Cited by:

    1. Jan Cimburek & Pavel Řežábek, 2013. "Currency in Circulation: Reaction in Crises," Český finanční a účetní časopis, University of Economics, Prague, vol. 2013(3).
    2. Hyytinen Ari & Takalo Tuomas, 2009. "Consumer Awareness and the Use of Payment Media: Evidence from Young Finnish Consumers," Review of Network Economics, De Gruyter, vol. 8(2), pages 1-25, June.
    3. Schuh, Scott & Stavins, Joanna, 2010. "Why are (some) consumers (finally) writing fewer checks? The role of payment characteristics," Journal of Banking & Finance, Elsevier, vol. 34(8), pages 1745-1758, August.
    4. Tobias Trütsch, 2014. "The Impact of Contactless Payment on Spending," International Journal of Economic Sciences, University of Economics, Prague, vol. 2014(4), pages 70-98.
    5. Fujiki, Hiroshi & Tanaka, Migiwa, 2014. "Currency demand, new technology, and the adoption of electronic money: Micro evidence from Japan," Economics Letters, Elsevier, vol. 125(1), pages 5-8.
    6. Tobias Truetsch, 2014. "The Impact of Contactless Payment on Spending," Proceedings of International Academic Conferences 0702228, International Institute of Social and Economic Sciences.
    7. Łukasz Goczek & Bartosz Witkowski, 2015. "Determinants of the number of card transactions," Collegium of Economic Analysis Annals, Warsaw School of Economics, Collegium of Economic Analysis, issue 39, pages 199-212.
    8. Docherty, Peter & Wang, Gehong, 2010. "Using synthetic data to evaluate the impact of RTGS on systemic risk in the Australian payments system," Journal of Financial Stability, Elsevier, vol. 6(2), pages 103-117, June.
    9. repec:bla:jorssc:v:66:y:2017:i:4:p:759-776 is not listed on IDEAS
    10. Łukasz Goczek & Bartosz Witkowski, 2015. "Card Payments in Poland: Determinants and Prospects," Gospodarka Narodowa, Warsaw School of Economics, issue 3, pages 159-177.
    11. Kopsakangas-Savolainen Maria & Takalo Tuomas, 2014. "Competition Before Sunset: The Case of the Finnish ATM Market," Review of Network Economics, De Gruyter, vol. 13(1), pages 1-33, March.
    12. Hiroshi Fujiki & Migiwa Tanaka, 2009. "Demand for Currency, New Technology and the Adoption of Electronic Money: Evidence Using Individual Household Data," IMES Discussion Paper Series 09-E-27, Institute for Monetary and Economic Studies, Bank of Japan.

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    Keywords

    Debit cards ; Cash flow ; Payment systems;

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