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Why Do People Save in Cash? Distrust, Memories of Banking Crises, Weak Institutions and Dollarization

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Abstract

The paper analyzes why households in transition economies prefer to hold sizeable shares of their assets in cash at home rather than in banks. Using survey data from ten Central, Eastern and Southeastern European countries, I document the relevance of this behavior and show that cash preferences cannot be fully explained by whether people are banked or unbanked. The analysis reveals that a lack of trust in banks, memories of past banking crises and weak tax enforcement are important factors. Moreover, cash preferences are stronger in dollarized economies where a “safe” foreign currency serves as a store of value.

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  • Helmut Stix, 2012. "Why Do People Save in Cash? Distrust, Memories of Banking Crises, Weak Institutions and Dollarization," Working Papers 178, Oesterreichische Nationalbank (Austrian Central Bank).
    • Handle: RePEc:onb:oenbwp:178
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    Cited by:

    1. Brown, Martin & De Haas, Ralph & Sokolov, Vladimir, 2013. "Regional Inflation and Financial Dollarization," Working Papers on Finance 1327, University of St. Gallen, School of Finance.
    2. Doris Ritzberger-Grünwald & Thomas Scheiber, 2012. "Euro Cash in Central, Eastern and Southeastern Europe," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 41-55.
    3. Ha van Dung, 2014. "Short-term precaution, insurance and saving mechanisms in rural Vietnam," Working Papers CIE 82, Paderborn University, CIE Center for International Economics.
    4. Martin Brown & Ralph De Haas & Vladimir Sokolov, 2013. "Regional inflation and financial dollarisation," Working Papers 163, European Bank for Reconstruction and Development, Office of the Chief Economist.
    5. Elisabeth Beckmann & Thomas Scheiber, 2012. "The Impact of Memories of High Inflation on Households’ Trust in Currencies," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 4, pages 80-93.
    6. Matti Viren, 2015. "Why so little revenues are obtained from a presumed large shadow economy?," Economics of Governance, Springer, vol. 16(2), pages 101-123, May.
    7. repec:mea:meawpa:14282 is not listed on IDEAS

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    More about this item

    Keywords

    Cash demand; cash hoarding; household finance; trust in banks; social capital; dollarization;
    All these keywords.

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • P34 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Finance

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