IDEAS home Printed from https://ideas.repec.org/a/wly/jmoncb/v41y2009i2-3p315-335.html
   My bibliography  Save this article

Whither Loose Change? The Diminishing Demand for Small‐Denomination Currency

Author

Listed:
  • GENE AMROMIN
  • SUJIT CHAKRAVORTI

Abstract

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.

Suggested Citation

  • Gene Amromin & Sujit Chakravorti, 2009. "Whither Loose Change? The Diminishing Demand for Small‐Denomination Currency," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(2‐3), pages 315-335, March.
    • Handle: RePEc:wly:jmoncb:v:41:y:2009:i:2-3:p:315-335
    DOI: 10.1111/j.1538-4616.2009.00207.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1538-4616.2009.00207.x
    Download Restriction: no
    File URL: https://libkey.io/10.1111/j.1538-4616.2009.00207.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. repec:bla:intfin:v:3:y:2000:i:2:p:211-27 is not listed on IDEAS
    2. Markose, Sheri M & Loke, Yiing Jia, 2002. "Can cash hold its own? International comparisons: Theory and evidence," Economics Discussion Papers 3734, University of Essex, Department of Economics.
    3. Helmut Stix, 2004. "How Do Debit Cards Affect Cash Demand? Survey Data Evidence," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 31(2), pages 93-115, June.
    4. Altig,David E. & Smith,Bruce D. (ed.), 2003. "Evolution and Procedures in Central Banking," Cambridge Books, Cambridge University Press, number 9780521814270, January.
    5. Whitesell, William C, 1992. "Deposit Banks and the Market for Payment Media," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 24(4), pages 483-498, November.
    6. Michael J. Lambert & Kristin D. Stanton, 2001. "Opportunities and challenges of the U.S. dollar as an increasingly global currency: a Federal Reserve perspective," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), vol. 87(Sep), pages 567-575, September.
    7. Mark J. Flannery, 1996. "Technology and payments: deja vu all over again?," Proceedings, Board of Governors of the Federal Reserve System (U.S.), pages 965-970.
    8. William J. Baumol, 1952. "The Transactions Demand for Cash: An Inventory Theoretic Approach," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 66(4), pages 545-556.
    9. Fernando Alvarez & Francesco Lippi, 2009. "Financial Innovation and the Transactions Demand for Cash," Econometrica, Econometric Society, vol. 77(2), pages 363-402, March.
    10. Sujit Chakravorti & Timothy McHugh, 2002. "Why do we use so many checks?," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 26(Q III), pages 44-59.
    11. Friedrich Schneider & Friedrich Schneider, 2008. "Shadow Economies and Corruption all over the World: What do we Really Know?," Chapters, in: Michael Pickhardt & Edward Shinnick (ed.), The Shadow Economy, Corruption and Governance, chapter 7, pages 122-187, Edward Elgar Publishing.
    12. Duca, John V. & VanHoose, David D., 2004. "Recent developments in understanding the demand for money," Journal of Economics and Business, Elsevier, vol. 56(4), pages 247-272.
    13. Benjamin M. Friedman, 1999. "The Future of Monetary Policy: The Central Bank as an Army with Only a Signal Corps?," International Finance, Wiley Blackwell, vol. 2(3), pages 321-338, November.
    14. Fernando Alvarez & Andrew Atkeson & Chris Edmond, 2003. "On the Sluggish Response of Prices to Money in an Inventory-Theoretic Model of Money Demand," NBER Working Papers 10016, National Bureau of Economic Research, Inc.
    15. Mathias Drehmann & Charles Goodhart & Malte Krueger, 2002. "The challenges facing currency usage: will the traditional transaction medium be able to resist competition from the new technologies? [‘Statement before the subcommittee on general oversight and i," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 17(34), pages 193-228.
    16. Shy, Oz & Tarkka, Juha, 2002. "The Market for Electronic Cash Cards," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(2), pages 299-314, May.
    17. Mitchell A. Petersen, 2009. "Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches," The Review of Financial Studies, Society for Financial Studies, vol. 22(1), pages 435-480, January.
    18. Borzekowski, Ron & Kiser, Elizabeth K., 2008. "The choice at the checkout: Quantifying demand across payment instruments," International Journal of Industrial Organization, Elsevier, vol. 26(4), pages 889-902, July.
    19. repec:bla:intfin:v:3:y:2000:i:2:p:229-60 is not listed on IDEAS
    20. Kenneth Rogoff, 1998. "Blessing or curse? Foreign and underground demand for euro notes," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 13(26), pages 262-303.
    21. Michael Woodford, 2000. "Monetary Policy in a World Without Money," International Finance, Wiley Blackwell, vol. 3(2), pages 229-260, July.
    22. Charles A. E. Goodhart, 2000. "Can Central Banking Survive the IT Revolution?," International Finance, Wiley Blackwell, vol. 3(2), pages 189-209, July.
    23. Benjamin M. Friedman, 1999. "The Future of Monetary Policy: The Central Bank as an Army With Only a Signal Corps," NBER Working Papers 7420, National Bureau of Economic Research, Inc.
    24. repec:bla:intfin:v:2:y:1999:i:3:p:321-38 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gene Amromin & Sujit Chakravorti, 2007. "Debit card and cash usage: a cross-country analysis," Working Paper Series WP-07-04, Federal Reserve Bank of Chicago.
    2. Geoffrey R. Dunbar, 2019. "Demographics and the demand for currency," Empirical Economics, Springer, vol. 57(4), pages 1375-1409, October.
    3. Rua, António, 2018. "Modelling currency demand in a small open economy within a monetary union," Economic Modelling, Elsevier, vol. 74(C), pages 88-96.
    4. Ulf Kalckreuth & Tobias Schmidt & Helmut Stix, 2014. "Choosing and using payment instruments: evidence from German microdata," Empirical Economics, Springer, vol. 46(3), pages 1019-1055, May.
    5. Snellman, Heli, 2006. "Automated teller machine network market structure and cash usage," Bank of Finland Scientific Monographs, Bank of Finland, volume 0, number sm2006_038, July.
    6. repec:zbw:bofism:2006_038 is not listed on IDEAS
    7. Snellman, Heli, 2006. "Automated teller machine network market structure and cash usage," Scientific Monographs, Bank of Finland, number 2006_038.
    8. Sinelnikova-Muryleva, Elena (Синельников-Мурылева, Елена), 2018. "Analysis of the Consequences of the Development of Payment Systems for Monetary Policy in the Context of Deepening Financial Markets [Анализ Последствий Развития Платежных Систем Для Денежно-Кредит," Working Papers 031813, Russian Presidential Academy of National Economy and Public Administration.
    9. Thornton, Daniel L., 2014. "Monetary policy: Why money matters (and interest rates don’t)," Journal of Macroeconomics, Elsevier, vol. 40(C), pages 202-213.
    10. Duca, John V. & VanHoose, David D., 2004. "Recent developments in understanding the demand for money," Journal of Economics and Business, Elsevier, vol. 56(4), pages 247-272.
    11. Lahdenperä, Harri, 2001. "Payment and financial innovation, reserve demand and implementation of monetary policy," Bank of Finland Research Discussion Papers 26/2001, Bank of Finland.
    12. Ulf Von Kalckreuth & Tobias Schmidt & Helmut Stix, 2014. "Using Cash to Monitor Liquidity: Implications for Payments, Currency Demand, and Withdrawal Behavior," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 46(8), pages 1753-1786, December.
    13. Mr. Saleh M. Nsouli & Connel Fullenkamp, 2004. "Six Puzzles in Electronic Money and Banking," IMF Working Papers 2004/019, International Monetary Fund.
    14. Columba, Francesco, 2009. "Narrow money and transaction technology: New disaggregated evidence," Journal of Economics and Business, Elsevier, vol. 61(4), pages 312-325, July.
    15. Temwa Joshua Kaluba. & Benjamin Kaira, 2024. "Impact of Financial Inclusion in Line with Mobile Money on Currency in Circulation," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 8(9), pages 3593-3604, September.
    16. Hervé Sitruk, 2008. "Monnaie électronique, monnaie fiduciaire et monnaie scripturale. Quelles substitutions ? Quelles stratégies ?," Revue d'Économie Financière, Programme National Persée, vol. 91(1), pages 37-51.
    17. Elena Sinelnikova-Muryleva, 2011. "Innovations in the sphere of payments and the money demand in Russia," Research Paper Series, Gaidar Institute for Economic Policy, issue 157P.
    18. repec:zbw:bofrdp:2015_022 is not listed on IDEAS
    19. Carlos Arango & Yassine Bouhdaoui & David Bounie & Martina Eschelbach & Lola Hernández, 2013. "Cash Management and Payment Choices: A Simulation Model with International Comparisons," Staff Working Papers 13-53, Bank of Canada.
    20. Akhand Akhtar Hossain, 2009. "Central Banking and Monetary Policy in the Asia-Pacific," Books, Edward Elgar Publishing, number 12777.
    21. repec:zbw:bofrdp:2006_021 is not listed on IDEAS
    22. Immordino, Giovanni & Russo, Francesco Flaviano, 2018. "Cashless payments and tax evasion," European Journal of Political Economy, Elsevier, vol. 55(C), pages 36-43.
    23. repec:zbw:bofrdp:urn:nbn:fi:bof-201511251450 is not listed on IDEAS
    24. Jan Marc Berk, 2002. "Banca centrale e innovazione finanziaria. Una rassegna della letteratura recente," Moneta e Credito, Economia civile, vol. 55(220), pages 345-385.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:jmoncb:v:41:y:2009:i:2-3:p:315-335. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.