Currency Demand at Negative Policy Rates

85 Pages Posted: 11 Feb 2022

Date Written: February 2, 2022


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 currency. We find evidence of a structural break in the demand of currency when rates on deposits fall below 0.1 per cent. Exploiting time, bank and banknote denomination variation, as well as exogenous reforms that affected currency payments and holdings, our analysis finds that the increase of currency in circulation seems to be mostly driven by transactions 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, Currency Demand at Negative Policy Rates (February 2, 2022). Bank of Italy Temi di Discussione (Working Paper) No. 1359, Available at SSRN: or

Edoardo Rainone (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184

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