Financial Innovation and the Transactions Demand for Cash

Álvarez, Fernando; Lippi, Francesco

doi:10.3386/w13416

“…The R-squares we obtain are also similar to other studies using survey data (see e.g. Alvarez and Lippi, 2009 …”

Section: Ecb Working Paper Series No 1144supporting

confidence: 77%

“…December 2009 ture on the demand for currency (Attanasio, Guiso & Jappelli 2002, Alvarez & Lippi 2009, Lippi & Secchi 2009, Stix 2004) and the rich literature on the choice of payment instruments ( e.g. Borzekowski, Kiser & Ahmed, 2008;Zinman, 2009) .…”

Section: Ecb Working Paper Series No 1144mentioning

confidence: 99%

Choosing and using payment instruments: evidence from German microdata

Kalckreuth

¹

,

Schmidt

²

,

Stix

³

2013

View full text Add to dashboard Cite

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. The aim of the conference was to better understand current developments in retail payment markets and to identify possible future trends, by bringing together policy conduct, research activities and market practice. The conference was organised around two major topics: first, the economic and regulatory implications of a more integrated retail payments market and, second, the strands of innovation and modernisation in the retail payments business. To make innovations successful, expectations and requirements of retail payment users have to be taken seriously. The conference has shown that these expectations and requirements are strongly influenced by the growing demand for alternative banking solutions, the increasing international mobility of individuals and companies, a loss of trust in the banking industry and major social trends such as the ageing population in developed countries. There are signs that customers see a need for more innovative payment solutions. Overall, the conference led to valuable findings which will further stimulate our efforts to foster the economic underpinnings of innovation and integration in retail banking and payments. Terms of use: Documents inWe would like to take this opportunity to thank all participants in the conference. In particular, we would like to acknowledge the valuable contributions of all presenters, discussants, session chairs and panellists, whose names can be found in the enclosed conference programme. Their main statements are summarised in the ECB-DNB official conference summary. Twelve papers related to the conference have been accepted for publication in this special series of the ECB Working Papers Series.Behind the scenes, a number of colleagues from the ECB and DNB contributed to both the organisation of the conference and the preparation of this conference report. Abstract 4 Non-technical summary 5

show abstract

“…In particular, introducing free and random withdrawal opportunities, they show that agents may withdraw cash even if they have some cash on hand; the randomness of opportunities, then, gives rise to a precautionary motive for holding cash. Contradicting Baumol-Tobin's predictions that abstract from a precautionary motive, Alvarez and Lippi (2009) nd that the model is consistent with stylized facts concerning households' cash management behavior. Using household data for Italy and the United States, they con rm the existence of a precautionary motive for holding cash.…”

Section: The Minimum Cash Holdings Rulementioning

confidence: 73%

“…Re ning standard inventory models on cash management à la Baumol (1952) and Tobin (1956), Alvarez and Lippi (2009) analyze how technological innovations such as ATM terminals have a ected the demand for cash. In particular, introducing free and random withdrawal opportunities, they show that agents may withdraw cash even if they have some cash on hand; the randomness of opportunities, then, gives rise to a precautionary motive for holding cash.…”

Section: The Minimum Cash Holdings Rulementioning

confidence: 99%

“…First, following Alvarez and Lippi (2009), we assume that an agent makes cash withdrawals even though his cash holdings are not zero; we de ne a "Minimum Cash Holdings" rule to mean that an agent withdraws cash when his cash balances drop below a given threshold. This rule has also been introduced in stochastic inventory models à la Fama (1968, 1969) and Milbourne (1983), where cash balances are allowed to wander freely between a lower (nonzero) and an upper limit, beyond which a cash transfer occurs.…”

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

Cash Management and Payment Choices: A Simulation Model with International Comparisons

Arango

¹

,

Bouhdaoui

²

,

Bounie

³

et al. 2014

View full text Add to dashboard Cite

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. iii Terms of use: Documents in AbstractDespite various payment innovations, today, cash is still heavily used to pay for lowvalue purchases. This paper develops a simulation model to test whether standard implications of the theory on cash management and payment choices can explain the use of payment instruments by transaction size. In particular, using diary survey data from Canada, France, Germany and the Netherlands, we test the assumption that cash is still the most efficient payment instrument, and the idea that people hold cash for precautionary reasons when facing uncertainty about their future purchases. The results of the simulations show that these two factors are significant determinants of the high shares of low-value cash payments in Canada, France and Germany. Yet, they are not so crucial in the Netherlands, which exhibits a significant share of low-value card transactions. We discuss how the differences in payment markets across countries may explain the differences in the performance of the model.

show abstract

The Impact of Electronic Money on Demand for Cash: Time Series Analysis

Kitamura

¹

2022

Hitotsubashi University IER Economic Research Series

View full text Add to dashboard Cite

Recent years have seen the rapid spread of prepaid IC-type electronic payment methods known as electronic money, including Suica, ICOCA, PASMO, SUGOCA, Kitaca, Edy, nanaco, WAON, and others. The inclusion of the word "money" in the name has led to a perception of privately issued "money" being used as an alternative to cash, especially in small denominations. It is sometimes argued that privatelyissued "money" will steal the seigniorage that the government and the Bank of Japan earn by issuing cash, or that private companies will be able to earn seigniorage. As things stand, it is clear that e-money is a type of payment method that requires a charge of cash and is not a substitute for cash itself.It is also true, however, that in recent years there have been reports that the balance of small-denomination money in circulation has declined due to the impact of electronic money's replacing it. On the other hand, there is a view that the decline in small-denomination money has been affected by structural changes in Japan, such as the introduction of fee-based bank ATMs, in addition to electronic money.The purpose of this chapter is to empirically examine the impact of e-money on the amount of money in circulation by type of money, taking into account as much as possible the structural changes in the financial system, including policy changes such as the increase in the consumption tax rate and the introduction of bank ATM charges.We would also like to discuss how widespread e-money actually is, what the characteristics of e-money are nationally, and what the prospects for its future are, as well as what the policy issues surrounding e-money are.

show abstract

Financial Innovation and the Transactions Demand for Cash

Cited by 80 publications

References 19 publications

Choosing and using payment instruments: evidence from German microdata

Choosing and using payment instruments: evidence from German microdata

Cash Management and Payment Choices: A Simulation Model with International Comparisons

The Impact of Electronic Money on Demand for Cash: Time Series Analysis

Contact Info

Product

Resources

About