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The Death of Cash? Not So Fast: Demand for U.S. Currency at Home and Abroad, 1990-2016

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  • Judson, Ruth

Abstract

It would seem that physical currency should be fading out as the world of payments is increasingly electronic, with new technologies emerging at a rapid pace, and as governments look to restrictions on large-denomination notes as a way to reduce crime and tax evasion. Nonetheless, demand for U.S. dollar banknotes continues to grow, and consistently increases at times of crisis both within and outside the United States because it remains a desirable store of value and medium of exchange in times and places where local currency or bank deposits are inferior. After allowing for the effect of crises, demand for U.S. banknotes appears to be driven by the same factors as demand for other types of money, with no discernible downward trend. In this work, I review developments in demand for U.S. currency since the collapse of Lehman Brothers in late 2008 with a focus on some new questions. First, what are the factors driving demand for lower denominations, especially $20s, which are the most commonly used in domestic transactions? To what extent can the recent strength in demand be attributed to the long spell of very low interest rates? Finally, for the larger denominations, I revisit the question of international demand: I present the raw data available for measuring international banknote flows and presents updates on indirect methods of estimating the stock of currency held abroad. These methods continue to indicate that a large share of U.S. currency is held abroad, especially in the $100 denomination. As shown in an earlier paper, once a country or region begins using dollars, subsequent crises result in additional inflows: the dominant sources of international demand over the past two decades are the countries and regions that were known to be heavy dollar users in the early to mid-1990s. While international demand for U.S. currency eased during the early 2000s as financial conditions improved, the abrupt return to strong international demand that began nearly a decade ago with the collapse of Lehman Brothers in 2008 has shown only limited signs of slowing. In contrast, the growth rate of demand for smaller denominations is slowing, perhaps indicating the first signs of declining domestic cash demand.

Suggested Citation

  • Judson, Ruth, 2017. "The Death of Cash? Not So Fast: Demand for U.S. Currency at Home and Abroad, 1990-2016," International Cash Conference 2017 – War on Cash: Is there a Future for Cash? 162910, Deutsche Bundesbank.
  • Handle: RePEc:zbw:iccp17:162910
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    File URL: https://www.econstor.eu/bitstream/10419/162910/1/Judson.pdf
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    References listed on IDEAS

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    1. Banegas, Ayelen & Judson, Ruth & Sims, Charles & Stebunovs, Viktors, 2015. "International Dollar Flows," International Finance Discussion Papers 1144, Board of Governors of the Federal Reserve System (U.S.).
    2. Theodore E. Allison & Rosanna S. Pianalto, 1997. "The issuance of series-1996 $100 Federal Reserve notes: goals, strategy, and likely results," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jul, pages 557-564.
    3. Kamin, Steven B. & Ericsson, Neil R., 2003. "Dollarization in post-hyperinflationary Argentina," Journal of International Money and Finance, Elsevier, vol. 22(2), pages 185-211, April.
    4. Greene, Claire & Schuh, Scott & Stavins, Joanna, 2016. "The 2014 survey of consumer payment choice: summary results," Research Data Report 16-3, Federal Reserve Bank of Boston.
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    Cited by:

    1. Benati, Luca & Lucas, Robert E. & Nicolini, Juan Pablo & Weber, Warren E., 2017. "Online Appendix for: International Evidence on Long-Run Money Demand," Working Papers 738, Federal Reserve Bank of Minneapolis.

    More about this item

    Keywords

    currency; banknotes; dollarization; crisis;

    JEL classification:

    • C82 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Macroeconomic Data; Data Access
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E49 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Other

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