Research on cash usage…

There are three research pieces looking at cash and other means to make payments.

First is this blogpost by  John Williams (President of San Francisco Fed) and Claire Wang. Second is this paper by ECN economists Henk Esselink and Lola Hernández on cash usage in Euroarea. Third is RBI Memo which looks at how non-cash transactions are rising across the country.

First the San Francisco Fed Blog says cash usage remains high and its death is widely exaggerated:

Keeping in mind the factors that influence the demand for cash, what has been happening with CIC around the world? The map shows how fast CIC grew compared to GDP from 2006 to 2016 in 42 countries. We compare CIC growth to that of GDP based on the conjecture that CIC should grow at about the same pace as GDP, assuming other factors affecting demand for cash are not at play.

The countries colored green saw CIC growth match or outpace the growth of GDP. The two countries colored red—Norway and Sweden—experienced outright declines in CIC over the past decade. The countries colored gray are those for which we do not have comparable data.

Figure 1
CIC growth compared to GDP from 2006 to 2016

Currency In Circulation Map

Source: IMF and authors’ calculations.

It may come as a surprise that, despite the explosion of technology in the payments sector, over the past ten years, CIC grew faster than GDP in most countries. Some countries like Mexico and South Korea saw CIC outpace GDP by more than 100 percentage points. The predominance of countries colored green suggests that other factors besides income growth are fueling the growth in CIC. Presumably, very low interest rates in many countries over the past decade has been one factor boosting the demand for cash, as well as uncertainty following the global financial crisis.

It also notes how certain countries are pushing cashless transactions. Surprisingly does not include India in the list which is clearing leading the pack and patting itself on the back.

In ECB paper:

This paper is the first study to measure the transaction demand for cash in the euro area. The results show that in 2016 around 79% of all payments at POS were made with cash, 19% with cards and 2% with other payment  instruments. In terms of value, the market share of main payment instruments was 54% for cash, 39% for cards and 7% for other instruments. However, results show substantial differences between euro area countries.

Lots of interesting data and charts in this…

RBI says:

Empirically evaluating the impact of demonetisation on inter-bank payment and settlement systems against the backdrop of progressive use of electronic modes and capping service charges, this study finds that (i) there has been a reduction in the usage of cheques prior to demonetisation; and (ii) since demonetisation, cash transactions have moved in a sustained manner to non-cash mode of payment systems via retail electronic payment systems, point of sale terminals and cheques.

It will be interesting if RBI also does a geographical analysis on this so called evolution and revolution of payments in India. ne could see huge differences as seen in Euroarea study..


One Response to “Research on cash usage…”

  1. Research on cash usage… | Mostly Economics | Me Stock Broker Says:

    […] Central Banks / Monetary Policy, Discussion. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own […]

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