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Central Banks and Payment Instruments: a Serious Case of Schizophrenia

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  • VAN HOVE, Leo

Abstract

This article analyses the competition between cash and payment cards against the backdrop of the dual role of central banks - as issuers of cash and as institutions with a mandate to foster the efficiency of payment systems in general. It is argued that this dual role results in a number of policy dilemmas, namely concerning pricing, traceability of banknotes and the choice of denominations of coins and banknotes. On a general level, the article argues that central banks should place greater emphasis on improving the efficiency of retail payments and less on protecting their self-interest. More concretely, the article repeats the suggestion - originally put forward in VAN HOVE & VUCHELEN (1996) - that the ECB should place the upper limit of its banknote series at EUR 50 instead of EUR 500. It is also argued that policy makers should explicitly foster the use of cost-based pricing and in particular create a legal environment that makes it possible for commercial banks to start using it.

Suggested Citation

  • VAN HOVE, Leo, 2007. "Central Banks and Payment Instruments: a Serious Case of Schizophrenia," MPRA Paper 5281, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:5281
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    File URL: https://mpra.ub.uni-muenchen.de/5281/1/MPRA_paper_5281.pdf
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    References listed on IDEAS

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    2. Martin Handig & Robert Holzfeind, 2007. "Euro Banknotes in Circulation and the Allocation of Monetary Income within the Eurosystem," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 150-163.
    3. Humphrey, David B & Kim, Moshe & Vale, Bent, 2001. "Realizing the Gains from Electronic Payments: Costs, Pricing, and Payment Choice," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(2), pages 216-234, May.
    4. Nicole Jonker & Bram Scholten & Marco Wind (DNB) & Martijn van Emmerik & Marieke van der Hoeven (TNO Human Factors), 2006. "Counterfeit or genuine: can you tell the difference?," DNB Working Papers 121, Netherlands Central Bank, Research Department.
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    7. Leo Van Hove, 1999. "Electronic money and the network externalities theory: lessons for real life," Netnomics, Springer, vol. 1(2), pages 137-171, October.
    8. Peter Mooslechner & Helmut Stix & Karin Wagner, 2006. "How Are Payments Made in Austria?," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 2, pages 111-134.
    9. Willem H. Buiter, 2005. "New Developments in Monetary Economics: Two ghosts, Two Eccentricities, a Fallacy, a Mirage and a Mythos," Economic Journal, Royal Economic Society, vol. 115(502), pages 1-31, March.
    10. Wilko Bolt, 2006. "Retail Payments in the Netherlands: Facts and Theory," De Economist, Springer, vol. 154(3), pages 345-372, September.
    11. N/A, 1996. "Note:," Foreign Trade Review, , vol. 31(1-2), pages 1-1, January.
    12. Nicole Jonker & Thijs Kettenis, 2007. "Explaining cash usage in the Netherlands: the effect of electronic payment instruments," DNB Working Papers 136, Netherlands Central Bank, Research Department.
    13. National Bank of Belgium, 2006. "Costs, advantages and drawbacks of the various means of payment," Economic Review, National Bank of Belgium, issue i, pages 41-47, June.
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    Citations

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    Cited by:

    1. Krueger, Malte, 2009. "The Pricing of Payments," MPRA Paper 24759, University Library of Munich, Germany.
    2. Bouhdaoui, Yassine & Van Hove, Leo, 2017. "On the socially optimal density of coin and banknote series: Do production costs really matter?," Journal of Macroeconomics, Elsevier, vol. 52(C), pages 252-267.
    3. Rösl, Gerhard & Seitz, Franz & Tödter, Karl-Heinz, 2017. "Doing away with cash? The welfare costs of abolishing cash," IMFS Working Paper Series 112, Goethe University Frankfurt, Institute for Monetary and Financial Stability (IMFS).
    4. Bouhdaoui, Y. & Bounie, D. & Van Hove, L., 2013. "When do plastic bills lower the bill for the central bank? A model and estimates for the U.S," Journal of Policy Modeling, Elsevier, vol. 35(1), pages 45-60.
    5. Seitz, Franz & Krueger, Malte, 2017. "The Blessing of Cash," International Cash Conference 2017 – War on Cash: Is there a Future for Cash? 162911, Deutsche Bundesbank.

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    More about this item

    Keywords

    payment instruments; central banks; cash; banknotes; payment cards; public policy; efficiency;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

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