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Payment Cards and Money Demand in Belgium

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  • Laura Rinaldi

    (K.U.Leuven, C.E.S., International Economics)

Abstract

The aim of this paper is to analyse the impact of payment cards use on the amount of money in circulation in Belgium. In all developed countries the amout of notes and coins has decreased over the past years. Such tendency can be attributed to a slow, but continuous process of substitution of cash by other means of payment for everyday transactions. If the substitution was first due to a widespread used of cheques, more recently this was intensified by cards' diffusion. This claim is supported by several empirical studies reviewed in this paper. They confirm the role of cards, together with their infrastructure (ATMs and EFT-POS terminals), in decreasing the number of cash transactions. We study a money demand model in Belgium through a co- integration analysis, where money is a function of structural variables, as well as some variables reflecting card's use in order to account for the substitution effect. We find that cards (debit, credit and, more recently, electronic purses) significantly contributed to the long run reduction of outstanding currency in Belgium over the last forty years. We extended the long run analysis into a more general error-correction model where short run imbalances significantly adjust to the long run relationship. Currency appears to respond quite slowly to disequilibria. Finally, we examine the dynamics of the model by means of impulse response functions that forecast the future developments of money demand.

Suggested Citation

  • Laura Rinaldi, "undated". "Payment Cards and Money Demand in Belgium," International Economics Working Papers Series ces0116, Katholieke Universiteit Leuven, Centrum voor Economische Studiën, International Economics.
  • Handle: RePEc:kul:kulwps:ces0116
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    References listed on IDEAS

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    Cited by:

    1. Franz Seitz & Lucas Devigne & Raymond de Pastor, 2022. "Different Motives for Holding Cash in France: an Analysis of the Net Cash Issues of the Banque de France," Working papers 888, Banque de France.
    2. Nadia Mbazia, 2023. "Do Payment Technology Innovations Affect Currency Demand in Tunisia?," International Journal of Economics and Financial Issues, Econjournals, vol. 13(1), pages 164-171, January.
    3. Helmut Stix, 2004. "How Do Debit Cards Affect Cash Demand? Survey Data Evidence," Economic Change and Restructuring, Springer, vol. 31(2), pages 93-115, June.
    4. repec:zbw:bofrdp:2004_027 is not listed on IDEAS
    5. Jyrkönen, Hanna, 2004. "Less cash on the counter : forecasting Finnish payment preferences," Research Discussion Papers 27/2004, Bank of Finland.
    6. Sinelnikova-Muryleva, Elena (Синельников-Мурылева, Елена), 2018. "Analysis of the Consequences of the Development of Payment Systems for Monetary Policy in the Context of Deepening Financial Markets [Анализ Последствий Развития Платежных Систем Для Денежно-Кредит," Working Papers 031813, Russian Presidential Academy of National Economy and Public Administration.
    7. Francisco J. Callado-Muñoz & Jana Hromcová & Natalia Utrero-González, 2012. "Transformation of payment systems: the case of European Union enlargement," Applied Economics Letters, Taylor & Francis Journals, vol. 19(18), pages 1787-1791, December.
    8. repec:bdi:opques:qef_144_01 is not listed on IDEAS
    9. Francisco J. Callado-Muñoz & Jana Hromcová & Natalia Utrero-González, 2014. "Effects of Institutional Environment and Technology Development on Payment Choice," Working Papers wpdea1403, Department of Applied Economics at Universitat Autonoma of Barcelona.
    10. Guerino Ardizzi & Eleonora Iachini, 2013. "Why are payment habits so heterogeneous across and within countries? Evidence from European countries and Italian regions," Questioni di Economia e Finanza (Occasional Papers) 144, Bank of Italy, Economic Research and International Relations Area.
    11. Tersoo IORNGURUM & Godwin NWAOBI, 2021. "An impulse response function analysis of the impact of modern payment technologies on money demand in Nigeria," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(2(627), S), pages 97-112, Summer.
    12. repec:onb:oenbwp:y::i:82:b:1 is not listed on IDEAS
    13. Jyrkönen, Hanna, 2004. "Less cash on the counter: forecasting Finnish payment preferences," Bank of Finland Research Discussion Papers 27/2004, Bank of Finland.
    14. Hakan Yilmazkuday & M. Ege Yazgan, 2009. "Effects of credit and debit cards on the currency demand," Applied Economics, Taylor & Francis Journals, vol. 41(17), pages 2115-2123.
    15. Imaduddin Sahabat & Teguh Dartanto & Haidy A. Passay & Diah Widyawati, 2017. "Electronics Payment Decisions of the Indonesian Urban Households: A Nested Logit Analysis of the Effects of the Payment Characteristics," International Journal of Economics and Financial Issues, Econjournals, vol. 7(5), pages 498-511.
    16. Alexander Lubis & Constantinos Alexiou & Joseph G. Nellis, 2019. "Gauging the Impact of Payment System Innovations on Financial Intermediation: Novel Empirical Evidence from Indonesia," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 18(3), pages 290-338, December.
    17. David, Bounie & Abel, François & Patrick, Waelbroeck, 2016. "Debit card and demand for cash," Journal of Banking & Finance, Elsevier, vol. 73(C), pages 55-66.
    18. Payam MOHAMMAD ALIHA & Tamat SARMIDI & Fathin FAIZAH SAID, 2020. "Investigating The Impact Of Atm And Pos Terminals On Money Demand In Nine European Countries In The Context Of A Random Effect Model As The Appropriate Panel Data Model," Regional Science Inquiry, Hellenic Association of Regional Scientists, vol. 0(2), pages 31-41, June.
    19. Erika Arraño & Juan Pablo Cova, 2018. "The Chilean experience of a universal access debit card," IFC Bulletins chapters, in: Bank for International Settlements (ed.), The role of data in supporting financial inclusion policy, volume 47, Bank for International Settlements.
    20. Ilona Skibińska-Fabrowska & Małgorzata Czuchryta & Adrian Żak, 2023. "The relationship between payment inclusion and the demand for cash," Bank i Kredyt, Narodowy Bank Polski, vol. 54(4), pages 365-388.

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    More about this item

    Keywords

    Money demand; cash substitution; conintegration; error-correction model; impulse response analysis;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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