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

29 Pages Posted: 27 Nov 2015

See all articles by Carlos A. Arango

Carlos A. Arango

Government of Canada - Bank of Canada

Yassine Bouhdaoui

Vrije Universiteit Brussel

David Bounie

Télécom Paris

Martina Eschelbach

Deutsche Bundesbank

Lola Hernández

De Nederlandsche Bank

Multiple version iconThere are 2 versions of this paper

Date Written: 2015

Abstract

Despite various payment innovations, today, cash is still heavily used to pay for low-value purchases. This paper proposes a simulation model based on two optimal cash management and payment policies in the payments economics literature to explain cash usage. First, cash is preferred to other payment instruments whenever consumers have enough balances at hand. Second, it is optimal for consumers to hold a stock of cash for precautionary reasons. Exploiting survey payment diaries from Canada, France, Germany and the Netherlands, the results of the simulations show that both optimal policies are well suited to understand the high shares of low-value cash payments in Canada, France and Germany. Yet, they do not perform as well in the case of the Netherlands, overestimating the share of low-value cash payments. We discuss how the differences in payment markets across countries may explain the limitations of the two optimal policies.

Keywords: C61, E41, E47, cash management, payment choices, international comparison

Suggested Citation

Arango, Carlos A. and Bouhdaoui, Yassine and Bounie, David and Eschelbach, Martina and Hernández, Lola, Cash Management and Payment Choices: A Simulation Model with International Comparisons (2015). Bank of Finland Research Discussion Paper No. 22/2015, Available at SSRN: https://ssrn.com/abstract=2695738

Carlos A. Arango (Contact Author)

Government of Canada - Bank of Canada ( email )

234 Wellington Street
Ontario, Ottawa K1A 0G9
Canada

Yassine Bouhdaoui

Vrije Universiteit Brussel ( email )

Boulevard de la Plaine 2
Ixelles, 1050
Belgium

David Bounie

Télécom Paris ( email )

19 Place Marguerite Perey
Palaiseau, 91120
France

Martina Eschelbach

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Lola Hernández

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

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