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The impact of technology on cash usage

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  • Goodhart, Charles
  • Krueger, Malte

Abstract

“Cash is dirty ... Cash is heavy ... Cash is inequitable ... Cash is quaint, technologically speaking ... Cash is expensive ... Cash is obsolete.” This is how James Gleick (1996) summarises the case against cash. By contrast, electronic means of payment are clean, technologically advanced and supposedly cheap and convenient. Thus, it is not surprising that industry representatives are optimistic that currency will be replaced by technologically more advanced electronic transfers and e-moneys of assorted varieties (Capie and Gormez 2000, Craig 1998). In a similar vein, monetary economists like K. Dowd (1997), B. Friedman (1999) or M. King (1999) have predicting the imminent disappearance of currency from common usage. We are sceptical about the accuracy of these predictions. Indeed we believe that currency, notes and coin, may be better protected against fundamental changes induced by IT than many other financial products and mechanisms. For example, the operation of equity markets has been, and will continue to be, revolutionised by IT. In the second Section of this paper we examine the particular characteristics of currency, notably its acceptability, anonymity and simplicity, and compare these characteristics with those of electronic alternatives. In the third Section of the paper we examine how such characteristics have affected the relative costs of using differing payment media, and the returns that may be expected from producing and circulating e-money. In this Section we examine micro-level data on the cost structure of using differing means of payment and highlight the crucial role of security concerns. In the fourth Section we shall review the macro-level time series data on trends in currency usage, and their determinants, in the main developed countries. We shall note that relative currency usage, measured as the ratio of currency outstanding to GDP, has in a few cases risen, and has in most countries only declined slowly. Absolute usage of currency, both in nominal and real terms, i.e. after deflation by an appropriate price index, generally continues to rise. By comparison, the outstanding value of e-money is minuscule. We conclude, in Section 5, that expectations of the demise of currency at the hands of IT are distinctly premature.

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  • Goodhart, Charles & Krueger, Malte, 2001. "The impact of technology on cash usage," LSE Research Online Documents on Economics 25048, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:25048
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    References listed on IDEAS

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    Cited by:

    1. 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.
    2. repec:bdi:opques:qef_144_01 is not listed on IDEAS
    3. Helmi Hamdi, 2007. "Some Ambiguities Concerning the Development of Electronic Money," Financial Theory and Practice, Institute of Public Finance, vol. 31(3), pages 293-307.
    4. Guerino Ardizzi & Eleonora Iachini, 2013. "Why are payment habits so heterogeneous across and within countries? Evidence from European countries and Italian regions," Questioni di Economia e Finanza (Occasional Papers) 144, Bank of Italy, Economic Research and International Relations Area.
    5. Guerino Ardizzi & Carmelo Petraglia & Massimiliano Piacenza & Gilberto Turati, 2014. "Measuring the Underground Economy with the Currency Demand Approach: A Reinterpretation of the Methodology, With an Application to Italy," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 60(4), pages 747-772, December.
    6. Setsuya Sato & John Hawkins, 2001. "Electronic finance: an overview of the issues," BIS Papers chapters, in: Bank for International Settlements (ed.), Electronic finance: a new perspective and challenges, volume 7, pages 1-12, Bank for International Settlements.
    7. Guerino Ardizzi & Carmelo Petraglia & Massimiliano Piacenza & Gilberto Turati, 2011. "Measuring the Shadow Economy with the Currency Demand Approach - A Reinterpretation of the methodology, with an application to Italy," Working papers 22, Former Department of Economics and Public Finance "G. Prato", University of Torino.
    8. Snellman, Heli, 2006. "Automated teller machine network market structure and cash usage," Scientific Monographs, Bank of Finland, number 2006_038.
    9. Guerino Ardizzi & Carmelo Petraglia & Massimiliano Piacenza & Friedrich Schneider & Gilberto Turati, 2013. "Money Laundering as a Financial Sector Crime - A New Approach to Measurement, with an Application to Italy," CESifo Working Paper Series 4127, CESifo.
    10. Martha Misas & Enrique López & Carlos Arango & Juan Nicolás Hernández, 2003. "La Demanda de Efectivo en Colombia: Una Caja Negra a la Luz de las Redes Neuronales," Borradores de Economia 268, Banco de la Republica de Colombia.
    11. Imaduddin Sahabat & Teguh Dartanto & Haidy A. Passay & Diah Widyawati, 2017. "Electronics Payment Decisions of the Indonesian Urban Households: A Nested Logit Analysis of the Effects of the Payment Characteristics," International Journal of Economics and Financial Issues, Econjournals, vol. 7(5), pages 498-511.
    12. Guerino Ardizzi & Carmelo Petraglia & Massimiliano Piacenza & Friedrich Schneider & Gilberto Turati, 2014. "Money Laundering as a Crime in the Financial Sector: A New Approach to Quantitative Assessment, with an Application to Italy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 46(8), pages 1555-1590, December.
    13. Peter Spencer, 2001. "Regulation of the payments market and the prospect for digital money," BIS Papers chapters, in: Bank for International Settlements (ed.), Electronic finance: a new perspective and challenges, volume 7, pages 69-79, Bank for International Settlements.
    14. repec:zbw:bofism:2006_038 is not listed on IDEAS
    15. Grym, Aleksi, 2020. "Lessons learned from the world's first CBDC," BoF Economics Review 8/2020, Bank of Finland.
    16. Payam MOHAMMAD ALIHA & Tamat SARMIDI & Fathin FAIZAH SAID, 2020. "Investigating The Impact Of Atm And Pos Terminals On Money Demand In Nine European Countries In The Context Of A Random Effect Model As The Appropriate Panel Data Model," Regional Science Inquiry, Hellenic Association of Regional Scientists, vol. 0(2), pages 31-41, June.

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