Substitution of Noncash Payment Instruments for Cash in Europe

Bank of Finland Working Paper No. 1/2000

42 Pages Posted: 10 Jun 2002

See all articles by Jussi Snellman

Jussi Snellman

Bank of Finland - Research

Jukka M. Vesala

Bank of Finland - Finnish Financial Supervision Authority (FIN-FSA)

David B. Humphrey

Florida State University - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: March 1, 2000

Abstract

The substitution of noncash (check, giro, and credit and debit card) payments for cash transactions is difficult to gauge because there are no data series on the actual value or volume of cash transactions in any country. However, determining the degree of cash substitution is important because it will negatively affect the central banks' and governments' seigniorage revenue. We utilise a novel method for approximating the volume of cash transactions using public information on currency stocks and noncash payments. Applying this method, we estimate how cash has been substituted by other payment instruments in 10 European countries. We also provide a forecast of future cash use by country. We find that the trend in cash substitution across countries is quite similar. However, the countries themselves are at significantly different stages of this substitution process. The spread of debit and credit card payments has been the key factor behind the substitution away from cash as use of e-cash innovation is still in its infancy. Country-specific differences in the substitution process are largely explained by differences in the level of implementation of each country's card payment technology.

Keywords: Cash substitution, learning curves, seigniorage

Suggested Citation

Snellman, Jussi and Vesala, Jukka and Humphrey, David B., Substitution of Noncash Payment Instruments for Cash in Europe (March 1, 2000). Bank of Finland Working Paper No. 1/2000, Available at SSRN: https://ssrn.com/abstract=312965 or http://dx.doi.org/10.2139/ssrn.312965

Jussi Snellman (Contact Author)

Bank of Finland - Research ( email )

P.O. Box 160
FIN-00101 Helsinki
Finland

Jukka Vesala

Bank of Finland - Finnish Financial Supervision Authority (FIN-FSA) ( email )

P.O. Box 160
FIN-00101 Helsinki
Finland

David B. Humphrey

Florida State University - Department of Finance ( email )

Tallahassee, FL 32306-1042
United States
850-644-7899 (Phone)
850-668-6696 (Fax)

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