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

26 Pages Posted: 21 Jun 2016

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: 2014

Abstract

Despite various payment innovations, today, cash is still heavily used to pay for low-value 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 performance of the model.

Keywords: Cash management, Payment Choices

JEL Classification: C61, E41, E47

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 (2014). Bundesbank Discussion Paper No. 04/2014, Available at SSRN: https://ssrn.com/abstract=2796951

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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