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Can Cash Hold Its Own? International Comparisons: Theory and Evidence
Abstract
A number of papers predict the imminent demise of currency use in transactions while some make a case for its continued use due to its distinctive feature of anonymity. Notwithstanding the latter, this paper shows on both theoretical and empirical grounds, that cash use is sustainable for the foreseeable future because of the cost competitiveness of ATM networked cash to the consumer relative to electronic POS card substitutes. Indeed, since the mid-1990s, Finland, Canada and France which are countries in the vanguard of EFTPOS development, have experienced a resurgence of ATM cash use as measured by its expenditure share.
... On the one hand, ATMs increase the benefits of holding a credit or debit card without using it for retail payments. Markose and Loke [2002] argue even that that the cost effectiveness of ATM cash dispensation has enabled cash to maintain its competitiveness vis-à-vis EFTPOS instruments such as credit cards and debit cards. Contrary to these arguments, it can be hypothesized that the availability of ATMs increases the convenience of cash payments. ...
... Obviously, credit and debit cards can be used for cash withdrawals, ATMs increase the benefits of holding such a card without using it. Markose and Loke [2002] argue that that the cost effectiveness of ATM cash dispensation has enabled cash to maintain its competitiveness vis-à-vis EFTPOS instruments such as credit cards and debit cards. This was largely confirmed as in the previous parts of the investigation. ...
... On the one hand, ATMs increase the benefits of holding a card without using it for retail payments. Markose and Loke (2002) argue that the cost effectiveness of ATM cash dispensation has enabled cash to maintain its competitiveness vis-à-vis EFTPOS payments. On the other hand, the availability of ATMs might increase the convenience of cash payments. ...
... For instance, the availability of ATMs decreases convenience costs of using cash and should increase card popularity. However, if cards can be used for cash withdrawals, the ATMs increase the benefits of holding such a card without using it as argued in Markose and Loke (2002). Correspondingly to the microeconomic model, the urbanization and tertiary education mattered positively for card ownership, but the age dependency proves insignificant. ...
Although the development of the card payment system allows for lowering the costs of money circulation and thereby leads to significant economic gains, relatively small amount of research has been dedicated to the analysis of the determinants of this development. Therefore, the aim of the article is to seek cross-country determinants of retail card payments focusing on trust in the system. The article concentrates on two econometric models. One is constructed with the use of representative population survey data for Poland, the other is based on panel data from the EU countries in the years 2000–2012.
... However, due to the small number of countries and considerably older data, it is advisable to repeat some aspects of this type of research on a much larger sample. It seems, the literature in this area is either outdated, concentrates on the innovations in technology or "has fast forwarded into futurology" (Markose, Loke 2002). ...
The development of the card payment system allows for lowering the costs of money emission and circulation and thereby leads to significant economic gains. Yet relatively small amount of research has been dedicated to the analysis of the determinants of these developments. Therefore, the aim of the article is to seek cross-country determinants of retail card payments. The focus of was put on two econometric models. One was constructed using survey data for Poland, the second model was based on panel data from the EU countries in the years 2000-2012. Based on the results from the second model forecasts for the number of cards and the value of card transactions per person were compiled.
... – 6 – damental source of gains from financial liberalization, that is, gains from increasing the ratio of commercial bank liabilities to fiat money (including both fiat paper and central bank deposits). The gains to be had by means of conventional forms of deregulation are, however , limited by the imperfect substitutability, given the existing state of wealth, preferences and technology, of bank deposits for fiat currency: even among the wealthy, and for the mass of smaller retail exchanges especially, paper currency remains competitive relative to both checks and electronic transfers (Markore and Loke 2002), while among the poor paper currency is frequently the only accessible (and accepted) financial asset. Official currency monopolies stand in the way of improved intermediation and growth in so far as they deny commercial banks access to a low-tech payment technology that happens to be uniquely appropriate for many transactions. ...
Modern paper currency contributes little to productive investment. This shortcoming is not inherent to paper money. It stems from the fact that such money is monopolistically supplied by public monetary authorities that are poor intermediaries. Commercial banknotes, in contrast, are just as capable as commercial bank deposits are of supporting efficient intermediation and, through it, more rapid economic growth. We demonstrate this advantage of commercial banknotes in a modified endogenous growth model, and use the model to simulate, for a sample of developing countries, steady-state growth rate gains from various degrees of banknote deregulation. The simulated gains are large compared to those from conventional forms of financial liberalization.
... Moreover, some economists have suggested that social welfare would improve if fewer cash transactions took place (De Grauwe, Buyst, and Rinaldi 2000; Van Hove 2004). Finally, there has been considerable debate among economists regarding the role of financial incentives on the adoption of electronic payments and its impact on the demand for paper-based payment instruments (Chakravorti and McHugh 2002; Humphrey, Pulley, and Vesala 1996; Markose and Loke 2002). ...
While payment card usage has increased dramatically, the stock of outstanding currency has not declined as rapidly. We analyze changes in cash demand for 13 advanced economies from 1988 to 2003 by separating cash into three denomination categories to disentangle its store of wealth and payment functions. Defining denominations commonly dispensed by automated teller machines (ATMs) as the "medium" category, we show that demand for small-denomination currency decreases with greater debit card usage and with greater retail market consolidation. In contrast, the demand for high-denomination notes decreases when interest rates rise but is generally unaffected by changes in debit card usage. Copyright (c) 2009 Federal Reserve Bank of Chicago with Exclusive License to Print by The Ohio State University.
... Ese comportamiento reciente del efectivo es inesperado por varias razones. La primera de ellas es que muchos autores coinciden en pronosticar una reducción secular de la demanda de efectivo en el largo plazo, como consecuencia del uso cada vez más frecuente de los sistemas de pagos electrónicos (Markose y Loke, 2002). Algunos autores plantean, incluso, que puede llegarse a la desaparición de la base monetaria con consecuencias sobre la política monetaria (Dowd, 1990;King, 1999y Friedman, 1999 2 . ...
Forecasting the demand for cash in Colombia has become a true challenge in the recent past. The last decade witnessed strong changes in the variables that determine the demand for money: Inflation and, hence, interest rates, fall substantially, technological progress was strong in the Colombian Payment System and distorting Tobin-like taxes to financial transactions were imposed. These changes are of special relevance when the demand for money is a non-linear function of its determinants. In this paper we exploit the flexibility of artificial neural networks (ANN) to explore the existence of nonlinearity in the demand for cash. The results show that the ANN models outperform those of linear nature in terms of forecast errors. Furthermore, significant evidence is found of non-linearity in the dynamics of the demand for cash.
... A similar calibration of cash-card substitution in other OECD countries has been done. This yields interesting results on early and late adopters of EFTPOS (Markose and Loke, 2002a). For a more thoroughgoing analysis of the monetary policy implications of the high interest rate sensitivity of the payments technology constrained transactions demand for money, the model developed here has been extended in Markose and Loke (2002b) to include an explicit banking sector with a household oriented loanable funds market. ...
We develop a Nash game on the adoption of a new EFTPOS (Electronic Fund Transfer at Point of Sale) card payment media given cash is dispensed by a competitive ATM (Automated Teller Machine) network. Equilibrium conditions when cash and card use coexist entail a specific relationship between the card network coverage parameter ("π"-super-"k") and the proportion ("ω") of cash financed expenditures. We derive a payments innovation technology constrained transactions demand for money which is highly interest rate sensitive in low interest rate regimes. Data on cash-card use in the UK (1990-97) is used to calibrate the model. Copyright 2003 Royal Economic Society.
This work investigates the relationships between the retail payment system, monetary aggregates and economic activity in Spain from a long-run perspective. This approach is considered from the perspective of the transformations favored by ICT in the payment system, which incorporates increasingly more and more cashless instruments. The methodology used is based on cointegration analysis and error correction models. Likewise, a new indicator of some trends in the implementation of cashless transactions in payment systems is proposed; this measure has been applied to Spain and other European countries. With respect to long-run relationships, we demonstrate the relevant (and direct) impact of changes in the monetary system and national income on the value of cashless transactions. Regarding the short run, the most important relationships in terms of the value of cashless transactions are those related to the real estate sector. The empirical results evidence the intensive progress of the cashless society in Spain, where the banking sector, regulatory changes and ICT development have played a key role.
There appears to be universal agreement that antitrust policy should "protect competition, not competitors" and that consumer welfare is the fundamental standard for evaluating competitive effects. There is considerable debate, however, about how to implement those principles in practice when evaluating rule-of-reason antitrust claims under the Sherman Act. The choice of an appropriate consumer harm necessarily involves a tradeoff between the risk of being so lenient that firms think they can get away with anticompetitive behavior and the risk of being so strict that the courts condemn practices that help consumers and thereby stifle the very competitive process the antitrust laws seek to protect. There is no way to eliminate both risks, and the courts and ultimately society need to choose how to minimize the expected costs of the inevitable errors. The Clinton Administration, in cases brought against Intel, Microsoft, and Visa/MasterCard, asked the courts to use a consumer harm standard that relied on an inference of harm to consumers from harm to competitors. In the two cases that went to trial and for which there is a complete record U.S. v. Microsoft and U.S. v. Visa U.S.A. et al. the district court accepted this approach. We explore two important issues in inferring consumer harm from competitor harm. The first is what preconditions must hold for it to be valid to make this inference. We show in this paper that courts in both Microsoft and Visa did not require Clinton Administration antitrust enforcers to establish critical preconditions. The second important issue is whether a showing of substantial harm to consumers should be required for liability. The courts can reduce errors by requiring evidence that the challenged practices have caused, or are likely to cause, substantial harm to consumers. The Microsoft and Visa cases both demonstrate that this is a realistic evidentiary hurdle that could have been required of the plaintiffs. There were many studies plaintiffs could have done to demonstrate significant effects on consumers if in fact there were such effects.
The purpose of this study is to analyse the evolution of payment behaviours by emphasizing the role of the regulation and the financial opening. We test whether the convergence process of payment technologies and regulations is propagated from upstream to downstream through the channel of standardized products, leading to the convergence of the demand for payment services. A test of conditional beta-convergence, relating to the use of five payment instruments, is performed on a panel of European countries. In general, results show evidence for convergence for all means of payment.
This paper analyzes how EFT-POS payments and ATM withdrawals affect cash demand. In particular, survey data about Austrian individuals are employed to estimate a purse cash demand equation, which takes account of sample selection effects. The results reveal that purse cash demand is significantly and sizably affected by debit card usage and that there are significant differences in cash demand for individuals with different debit card usage frequencies. In addition, the effect of EFT-POS payments on cash use at the point-of-sale is discussed on the basis of data from a consumer transaction survey.
During the last decade, debit card transactions grew rapidly in most advanced countries. While check usage declined and has almost disappeared in some countries, the stock of currency in circulation has not declined as fast. We use panel estimation techniques to analyze the change in transactional demand for cash resulting from greater usage of debit cards in 13 countries from 1988 to 2003. We are able to disentangle cash’s store of value function from its payment function by separating cash into three denomination categories. We find that the demand for low denomination notes and coins decreases as debit card usage increases because merchants need to make less change for customer purchases. On the other hand, the demand for high denomination notes is generally less affected suggesting that these denomination notes are also used for non-transactional purposes.
En el caso colombiano la tarea de pronosticar el futuro comportamiento del efectivo se ha convertido en un verdadero reto ya que durante la última década la economía ha sufrido importantes trasformaciones que han traído consigo una mayor volatilidad en las variables que lo determinan. En particular, recientemente se ha dado una fuerte reducción en la rentabilidad de activos alternativos al efectivo debido a la reducción en la tasa de inflación y a la introducción del impuesto a las transacciones financieras. Al mismo tiempo, los ciclos de la actividad económica parecen ser más pronunciados. Estos cambios cobran especial relevancia en la medida en que la demanda de dinero esté asociada en forma no lineal con sus determinantes. En este trabajo se explora esta posible relación no lineal y se explota la flexibilidad de las redes neuronales artificiales -ANN- para modelarla. Las ganancias en los errores de pronóstico y la significancia estadística de las pruebas de no linealidad frente a modelos de naturaleza lineal auguran un futuro promisorio a estas técnicas que permiten predecir mejor el futuro en un entorno cambiante.
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