Cash Demand at Negative Policy Rates

51 Pages Posted: 30 Aug 2021

Date Written: July 5, 2021


Following the implementation of negative policy rates, interest rates on bank deposits reached their historic lows, with values close or equal to zero. This paper investigates the implications of such a new environment for the demand of cash. We find evidence of a discontinuity in the demand of cash when rates on bank deposits fall below 0.1 per cent. Exploiting time, bank and banknote denomination variation, as well as exogenous shocks to cash payments and holdings, our analysis finds that the increase of cash in circulation seems to be mostly driven by transactions demand instead of store-of-value demand.

Keywords: financial stability, monetary policy, negative interest rates, deposits, zero lower bound, money demand.

JEL Classification: E41, E42, E52, E58.

Suggested Citation

Rainone, Edoardo, Cash Demand at Negative Policy Rates (July 5, 2021). Available at SSRN: or

Edoardo Rainone (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184

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