Debit Card and Cash Usage: A Cross-Country Analysis

53 Pages Posted: 20 Apr 2007

See all articles by Gene Amromin

Gene Amromin

Federal Reserve Bank of Chicago

Sujit Chakravorti

Independent

Date Written: March 2007

Abstract

During the last decade, debit card transactions grew rapidly in most advanced countries. While check usage declined and has almost disappeared in some countries, the stock of currency in circulation has not declined as fast. We use panel estimation techniques to analyze the change in transactional demand for cash resulting from greater usage of debit cards in 13 countries from 1988 to 2003. We are able to disentangle cash's store of value function from its payment function by separating cash into three denomination categories. We find that the demand for low denomination notes and coins decreases as debit card usage increases because merchants need to make less change for customer purchases. On the other hand, the demand for high denomination notes is generally less affected suggesting that these denomination notes are also used for nontransactional purposes.

Keywords: payment networks, money demand, technological infrastructure

JEL Classification: D23, E41, G21

Suggested Citation

Amromin, Gene and Chakravorti, Sujit, Debit Card and Cash Usage: A Cross-Country Analysis (March 2007). FRB of Chicago Working Paper No. 2007-04. Available at SSRN: https://ssrn.com/abstract=981236 or http://dx.doi.org/10.2139/ssrn.981236

Gene Amromin (Contact Author)

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
230 S. LaSalle
Chicago, IL 60604
United States
3123225368 (Phone)
3123226011 (Fax)

Sujit Chakravorti

Independent ( email )

No Address Available

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