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Cash Is King: The Role Of Financial Infrastructure In Digital Adoption

Author

Listed:
  • Bhavya Agarwal

    (Citi, USA)

  • Nirupama Kulkarni

    (Centre for Advanced Financial Research (CAFRAL))

  • S.K Ritadhi

    (Ashoka University)

Abstract

This paper examines whether a one-time, extensive, but temporary shock to cash supply can affect the adoption of digital payments. We exploit the 2016 demonetization episode in India, which overnight discontinued 86% of cash in circulation. Using novel administrative data from retail debit card transactions, we identify a 12% increase in digital payments in areas adversely affected by the cash shortage, which persisted well after the restoration of cash supply. Examining mechanisms, we find a limited role for social networks and stronger support for learning by doing. Further, information frictions hinder the immediate adoption of digital payments.

Suggested Citation

  • Bhavya Agarwal & Nirupama Kulkarni & S.K Ritadhi, 2023. "Cash Is King: The Role Of Financial Infrastructure In Digital Adoption," Working Papers 022278, Centre for Advanced Financial Research and Learning (CAFRAL).
    • Handle: RePEc:ris:cafral:022278
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    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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