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Cash holdings in Germany and the demand for "German" banknotes: What role for cashless payments?

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Listed:
  • Bartzsch, Nikolaus
  • Seitz, Franz

Abstract

This paper models the demand for banknotes issued in Germany. It highlights that all motives for holding banknotes are present in this case. Inter alia, special attention is paid to the role of card payments. For small and large denomination notes we are able to establish meaningful vector error correction models (VECM). The results suggest that the long-run demand for German small denomination notes is mainly driven by domestic transactions and demand from outside the euro area. The transaction motive in the rest of the euro area and non-cash payments are part of the short-term dynamics. The long-run demand for German large denomination notes is mainly driven by foreign demand both from the rest of the euro area and outside the EMU. The global financial crisis led to a one-time increase in the (real) demand for these notes. Our results are in line with estimates according to which the level and dynamics of banknote demand are largely determined by foreign demand. It was not possible to setup a VECM for medium denominations for which we resort to a singleequation approach. Card payments do not play any role for the medium and large denomination categories.

Suggested Citation

  • Bartzsch, Nikolaus & Seitz, Franz, 2015. "Cash holdings in Germany and the demand for "German" banknotes: What role for cashless payments?," Weidener Diskussionspapiere 51, University of Applied Sciences Amberg-Weiden (OTH).
    • Handle: RePEc:zbw:hawdps:51
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    References listed on IDEAS

    as
    1. Snellman, Jussi & Vesala, Jukka, 1999. "Forecasting the elecronification of payments with learning curves : The case of Finland," Research Discussion Papers 8/1999, Bank of Finland.
    2. B. Bhaskara Rao, 2007. "Estimating short and long-run relationships: a guide for the applied economist," Applied Economics, Taylor & Francis Journals, vol. 39(13), pages 1613-1625.
    3. Ozge Akinci, 2003. "Modeling the Demand for Currency Issued in Turkey," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 3(1), pages 1-25.
    4. Seitz, Franz, 1995. "The circulation of Deutsche Mark abroad," Discussion Paper Series 1: Economic Studies 1995,01e, Deutsche Bundesbank.
    5. repec:zbw:bofrdp:1999_008 is not listed on IDEAS
    6. Snellman, Jussi & Vesala, Jukka & Humphrey, David, 2000. "Substitution on noncash payment instruments for cash in Europe," Research Discussion Papers 1/2000, Bank of Finland.
    7. repec:zbw:bofrdp:2000_001 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. 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.
    2. Katrin Assenmacher & Franz Seitz & Jörn Tenhofen, 2019. "The demand for Swiss banknotes: some new evidence," Swiss Journal of Economics and Statistics, Springer;Swiss Society of Economics and Statistics, vol. 155(1), pages 1-22, December.
    3. Franz Seitz & Hans-Eggert Reimers & Friedrich Schneider, 2018. "Cash in Circulation and the Shadow Economy: An Empirical Investigation for Euro Area Countries and Beyond," CESifo Working Paper Series 7143, CESifo.
    4. Maixe-Altes, J. Carles & Mourelle, Estefanía, 2016. "Cash and non-cash payments in a long run perspective, Spain 1989-2014," MPRA Paper 72590, University Library of Munich, Germany.

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    More about this item

    Keywords

    banknotes; vector error correction; card payments;
    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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