IDEAS home Printed from https://ideas.repec.org/p/imf/imfwpa/2019-046.html
   My bibliography  Save this paper

Cash Use Across Countries and the Demand for Central Bank Digital Currency

Author

Listed:
  • Mr. Tanai Khiaonarong
  • David Humphrey

Abstract

The level and trend in cash use in a country will influence the demand for central bank digital currency (CBDC). While access to digital currency will be more convenient than traveling to an ATM, it only makes CBDC like a bank debit card—not better. Demand for digital currency will thus be weak in countries where cash use is already very low, due to a preference for cash substitutes (cards, electronic money, mobile phone payments). Where cash use is very high, demand should be stronger, due to a lack of cash substitutes. As the demand for CBDC is tied to the current level of cash use, we estimate the level and trend in cash use for 11 countries using four different measures. A tentative forecast of cash use is also made. After showing that declining cash use is largely associated with demographic change, we tie the level of cash use to the likely demand for CBDC in different countries. In this process, we suggest that one measure of cash use is more useful than the others. If cash is important for monetary policy, payment instrument competition, or as an alternative payment instrument in the event of operational problems with privately supplied payment methods, the introduction of CBDC may best be introduced before cash substitutes become so ubiquitous that the viability of CBDC could be in doubt.

Suggested Citation

  • Mr. Tanai Khiaonarong & David Humphrey, 2019. "Cash Use Across Countries and the Demand for Central Bank Digital Currency," IMF Working Papers 2019/046, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:2019/046
    as

    Download full text from publisher

    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=46617
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. John Bagnall & David Bounie & Kim P. Huynh & Anneke Kosse & Tobias Schmidt & Scott Schuh, 2016. "Consumer Cash Usage: A Cross-Country Comparison with Payment Diary Survey Data," International Journal of Central Banking, International Journal of Central Banking, vol. 12(4), pages 1-61, December.
    2. Kenneth Rogoff, 2015. "Costs and Benefits to Phasing out Paper Currency," NBER Macroeconomics Annual, University of Chicago Press, vol. 29(1), pages 445-456.
    3. Gordon Flannigan & Andrew Staib, 2017. "The Growing Demand for Cash," RBA Bulletin (Print copy discontinued), Reserve Bank of Australia, pages 63-74, September.
    4. Meade, Nigel & Islam, Towhidul, 1995. "Forecasting with growth curves: An empirical comparison," International Journal of Forecasting, Elsevier, vol. 11(2), pages 199-215, June.
    5. Claire Greene & Scott Schuh, 2017. "The 2016 Diary of Consumer Payment Choice," Research Data Report 17-7, Federal Reserve Bank of Boston.
    6. Walter Engert & Ben Fung, 2017. "Central Bank Digital Currency: Motivations and Implications," Discussion Papers 17-16, Bank of Canada.
    7. Morten Linnemann Bech & Rodney Garratt, 2017. "Central bank cryptocurrencies," BIS Quarterly Review, Bank for International Settlements, September.
    8. Ben Fung & Kim Huynh & Gerald Stuber, 2015. "The Use of Cash in Canada," Bank of Canada Review, Bank of Canada, vol. 2015(Spring), pages 45-56.
    9. Christopher Henry & Kim Huynh & Rallye Shen, 2015. "2013 Methods-of-Payment Survey Results," Discussion Papers 15-4, Bank of Canada.
    10. Mr. Maria Soledad Martinez Peria & Mr. John Kiff & Ms. Celine Rochon & Ms. Adina Popescu & Mr. Itai Agur & Mr. Tommaso Mancini Griffoli & Mr. Anil Ari, 2018. "Casting Light on Central Bank Digital Currencies," IMF Staff Discussion Notes 2018/008, International Monetary Fund.
    11. Geoffrey R. Gerdes & Jonathan Hamburg & May X. Liu, 2016. "The Federal Reserve Payments Study 2016: Recent Developments in Consumer and Business Payment Choices," Reports and Studies 4170, Board of Governors of the Federal Reserve System (U.S.).
    12. Humphrey, David & Kaloudis, Aris & Owre, Grete, 2004. "The future of cash: falling legal use and implications for government policy," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 14(3), pages 221-233, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Shy, Oz, 2020. "How currency denomination and the ATM affect the way we pay," Journal of Economics and Business, Elsevier, vol. 111(C).
    2. Grodecka-Messi, Anna, 2019. "Private Bank Money vs Central Bank Money: A Historical Lesson for CBDC Introduction," Working Papers 2019:21, Lund University, Department of Economics.
    3. Thitima Chucherd & Chanokkarn Mek-yong & Nalin Nookhwun & Passawuth Nuntnarumit & Natta Piyakarnchana & Suparit Suwanik, 2021. "Monetary and Financial Perspectives on Retail CBDC in the Thai Context," PIER Discussion Papers 152, Puey Ungphakorn Institute for Economic Research, revised May 2021.
    4. Morales-Resendiz, Raúl & Ponce, Jorge & Picardo, Pablo & Velasco, Andrés & Chen, Bobby & Sanz, León & Guiborg, Gabriela & Segendorff, Björn & Vasquez, José Luis & Arroyo, John & Aguirre, Illich & Hayn, 2021. "Implementing a retail CBDC: Lessons learned and key insights," Latin American Journal of Central Banking (previously Monetaria), Elsevier, vol. 2(1).
    5. Beniak, Patrycja, 2019. "Central bank digital currency and monetary policy: a literature review," MPRA Paper 96663, University Library of Munich, Germany.
    6. Marie-Hélène Felt, 2020. "Losing Contact: The Impact of Contactless Payments on Cash Usage," Staff Working Papers 20-56, Bank of Canada.
    7. Hilaire, Alvin & Mahabir, Reshma, 2020. "The great exchange: Rapid demonetization in Trinidad and Tobago," Latin American Journal of Central Banking (previously Monetaria), Elsevier, vol. 1(1).
    8. Rod Garratt & Maarten van Oordt, 2019. "Systemic Privacy as a Public Good: A Case for Electronic Cash," Staff Working Papers 19-24, Bank of Canada.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kim Huynh & Gradon Nicholls & Oleksandr Shcherbakov, 2019. "Explaining the Interplay Between Merchant Acceptance and Consumer Adoption in Two-Sided Markets for Payment Methods," Staff Working Papers 19-32, Bank of Canada.
    2. Alexandra Mitschke, 2021. "Central Bank Digital Currencies and Monetary Policy Effectiveness in the Euro Area," Working Papers Dissertations 74, Paderborn University, Faculty of Business Administration and Economics.
    3. Chen, Heng & Huynh, Kim P. & Shy, Oz, 2019. "Cash versus card: Payment discontinuities and the burden of holding coins," Journal of Banking & Finance, Elsevier, vol. 99(C), pages 192-201.
    4. Ben Fung & Kim Huynh & Kerry Nield & Angelika Welte, 2018. "Merchant Acceptance of Cash and Credit Cards at the Point of Sale," Staff Analytical Notes 2018-1, Bank of Canada.
    5. Arango-Arango, Carlos A. & Bouhdaoui, Yassine & Bounie, David & Eschelbach, Martina & Hernandez, Lola, 2018. "Cash remains top-of-wallet! International evidence from payment diaries," Economic Modelling, Elsevier, vol. 69(C), pages 38-48.
    6. Oz Shy, 2019. "Cashless Stores and Cash Users," FRB Atlanta Working Paper 2019-11, Federal Reserve Bank of Atlanta.
    7. Heng Chen & Marie-Hélène Felt & Kim P. Huynh, 2017. "Retail payment innovations and cash usage: accounting for attrition by using refreshment samples," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 180(2), pages 503-530, February.
    8. Mohammad Davoodalhosseini, 2018. "Central Bank Digital Currency and Monetary Policy," Staff Working Papers 18-36, Bank of Canada.
    9. Janet Hua Jiang & Enchuan Shao, 2020. "The Cash Paradox," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 36, pages 177-197, April.
    10. Valéry Dongmo Jiongo & Pierre Nguimkeu, 2018. "Bootstrapping Mean Squared Errors of Robust Small-Area Estimators: Application to the Method-of-Payments Data," Staff Working Papers 18-28, Bank of Canada.
    11. Sarah Allen & Srđjan Čapkun & Ittay Eyal & Giulia Fanti & Bryan A. Ford & James Grimmelmann & Ari Juels & Kari Kostiainen & Sarah Meiklejohn & Andrew Miller & Eswar Prasad & Karl Wüst & Fan Zhang, 2020. "Design Choices for Central Bank Digital Currency: Policy and Technical Considerations," NBER Working Papers 27634, National Bureau of Economic Research, Inc.
    12. Paolo Fegatelli, 2019. "Central bank digital currencies: The case of universal central bank reserves," BCL working papers 130, Central Bank of Luxembourg.
    13. Immordino, Giovanni & Russo, Francesco Flaviano, 2018. "Cashless payments and tax evasion," European Journal of Political Economy, Elsevier, vol. 55(C), pages 36-43.
    14. Christopher Henry & Kim Huynh & Gradon Nicholls, 2017. "Bitcoin Awareness and Usage in Canada," Staff Working Papers 17-56, Bank of Canada.
    15. Scott Schuh, 2018. "Measuring Consumer Expenditures With Payment Diaries," Economic Inquiry, Western Economic Association International, vol. 56(1), pages 13-49, January.
    16. Charles M. Kahn & Francisco Rivadeneyra & Tsz-Nga Wong, 2018. "Should the Central Bank Issue E-money?," Staff Working Papers 18-58, Bank of Canada.
    17. Thitima Chucherd & Chanokkarn Mek-yong & Nalin Nookhwun & Passawuth Nuntnarumit & Natta Piyakarnchana & Suparit Suwanik, 2021. "Monetary and Financial Perspectives on Retail CBDC in the Thai Context," PIER Discussion Papers 152, Puey Ungphakorn Institute for Economic Research, revised May 2021.
    18. David Andolfatto, 2018. "Assessing the Impact of Central Bank Digital Currency on Private Banks," Working Papers 2018-026, Federal Reserve Bank of St. Louis, revised 22 Apr 2020.
    19. Joanna Stavins, 2017. "How do consumers make their payment choices?," Research Data Report 17-1, Federal Reserve Bank of Boston.
    20. Shy, Oz, 2020. "How currency denomination and the ATM affect the way we pay," Journal of Economics and Business, Elsevier, vol. 111(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:imf:imfwpa:2019/046. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/imfffus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Akshay Modi (email available below). General contact details of provider: https://edirc.repec.org/data/imfffus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.