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Demand for Currency, New Technology and the Adoption of Electronic Money: Evidence Using Individual Household Data

Author

Listed:
  • Hiroshi Fujiki

    (Associate Director-General and Senior Monetary Affairs Department, Bank of Japan (E-mail: hiroshi.fujiki @boj.or.jp))

  • Migiwa Tanaka

    (Assistant Professor, Department of Economics, School of Business and Management, The Hong Kong University of Science and Technology (E-mail: mtanaka@ust.hk))

Abstract

Accurate information on money demand is essential for evaluation of monetary policy. In this regard, it is important to study the effect of financial innovation to money demand. We investigate the effect of a new form of such technology, electronic money, to money demand. Specifically, we estimate currency demand functions conditional on electronic money adoption using unique household-level survey data from Japan. We obtain the following results. First, currency demand indicates that average cash balances do not decrease with the adoption of electronic money. Rather, it seems to increase under some specifications. Second, households at the lowest quantile of the cash balance distribution tend to have higher cash balances after adopting of electronic money. These findings indicate that consumers do not significantly substitute cash holding with e-money holding despite the rapid diffusion of electronic money among households.

Suggested Citation

  • 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.
  • Handle: RePEc:ime:imedps:09-e-27
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    File URL: http://www.imes.boj.or.jp/research/papers/english/09-E-27.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Ben Fung & Kim Huynh & Leonard Sabetti, 2012. "The Impact of Retail Payment Innovations on Cash Usage," Staff Working Papers 12-14, Bank of Canada.
    2. William Jack & Tavneet Suri & Robert M. Townsend, 2010. "Monetary theory and electronic money : reflections on the Kenyan experience," Economic Quarterly, Federal Reserve Bank of Richmond, issue 1Q, pages 83-122.
    3. Feige, Edgar L., 2012. "The myth of the “cashless society”: How much of America’s currency is overseas?," MPRA Paper 42169, University Library of Munich, Germany.

    More about this item

    Keywords

    Currency Demand; Transaction Demands for Money; Electronic Money;

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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