Date published: Oct 2017
SUERF Policy Note, Issue No 19
Clemens Jobst and Helmut Stix, Oesterreichische Nationalbank
JEL-codes: E41, E43, E51, F31, G15, G21.
Keywords: ATMs, cash demand, confidence in banks, currency circulation, currency holdings, electronic payments, hoarding, interest rate elasticity, transaction demand for money, velocity of money.
Contrary to predictions that demand for cash will decline with the increased availability and use of non-cash payment means, currency demand has increased in the euro area and the U.S.A. over the past 15 years. In this context, this short article summarizes recent findings from Jobst and Stix (2017), broadening the scope both along the spatial and the time dimensions. Data on currency circulation from 2001 until 2014 for a sample of 70 economies reveals that the recent increase in circulation is not confined to international currencies like the U.S. dollar or the euro but can be observed in very different economies. Investigating evidence for the United States and Germany for the past 140 years shows that the recent increase is sizeable and compares to a similar upsurge in the wake of the 1930s financial crisis. Finally, in economies where currency demand increased, the increase typically took place after the start of the economic and financial crisis of 2007/08. Panel money demand models show that conventional economic factors like low interest rates can account for some part of the increase but leave a notable part unexplained, in particular in rich economies. While hard evidence is difficult to come by, we conjecture that cash demand was driven by the higher level of economic uncertainty pertaining since the financial crisis of 2008, which resulted in hoarding.
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