Cash Use Across Countries and the Demand for Central Bank Digital Currency

44 Pages Posted: 8 Apr 2019

See all articles by Tanai Khiaonarong

Tanai Khiaonarong

Payment Systems Policy Department of the Financial Institutions Policy Group of the Bank of Thailand

David Humphrey

Florida State University

Date Written: March 2019

Abstract

The level and trend in cash use in a country will influence the demand for central bank digital currency (CBDC). While access to digital currency will be more convenient than traveling to an ATM, it only makes CBDC like a bank debit card-not better. Demand for digital currency will thus be weak in countries where cash use is already very low, due to a preference for cash substitutes (cards, electronic money, mobile phone payments). Where cash use is very high, demand should be stronger, due to a lack of cash substitutes. As the demand for CBDC is tied to the current level of cash use, we estimate the level and trend in cash use for 11 countries using four different measures. A tentative forecast of cash use is also made. After showing that declining cash use is largely associated with demographic change, we tie the level of cash use to the likely demand for CBDC in different countries. In this process, we suggest that one measure of cash use is more useful than the others. If cash is important for monetary policy, payment instrument competition, or as an alternative payment instrument in the event of operational problems with privately supplied payment methods, the introduction of CBDC may best be introduced before cash substitutes become so ubiquitous that the viability of CBDC could be in doubt.

Keywords: Bank credit, Central banks, Central bank policy, Central bank accounting, Bank accounting, digital cash, e-money, physical cash, non-cash, giro

JEL Classification: E41, E42, E58, E59, E01, G21, E52, M41, H83

Suggested Citation

Khiaonarong, Tanai and Humphrey, David, Cash Use Across Countries and the Demand for Central Bank Digital Currency (March 2019). IMF Working Paper No. 19/46. Available at SSRN: https://ssrn.com/abstract=3367431

Tanai Khiaonarong (Contact Author)

Payment Systems Policy Department of the Financial Institutions Policy Group of the Bank of Thailand ( email )

273 Samsen Road
Bangkhunprom, Bangkok 10200
Thailand

David Humphrey

Florida State University ( email )

423 Rovetta Business Building
Tallahassee, FL 32306-1110
United States
850-294-7896 (Phone)

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