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Cash use across countries and the demand for central bank digital currency
Journal of Payments Strategy & Systems,
13
(1),
32-46
(2019)
Abstract
Within any country, the demand for central bank digital currency (CBDC) will be influenced by trends in the level of cash use. While having access to digital currency is more convenient than having to travel to an automated teller machine, this only makes digital currency as convenient as a bank debit card — not better. Demand for digital currency will thus be weak in countries where the adoption of cash substitutes (eg cards, electronic money, mobile phone payments) has suppressed demand for cash. By contrast, where cash use is high due to a lack of substitutes, demand for digital currency should be stronger. Building on the observation that demand for CBDC is tied to the current level of cash use, this paper uses four measures to assess trends in the demand for cash in 11 countries. A tentative forecast of cash use is also made. After showing that declining cash use is largely associated with demographic change, the study ties the level of cash use to the likely demand for CBDC in different countries. In this process, it is suggested that one measure of cash use is more useful than the others.
Keywords: cash use; cash forecasting; central bank digital currency
The full article is available to subscribers to the journal.
Author's Biography
Tanai Khiaonarong is a Senior Financial Sector Expert in the Monetary and Capital Markets Department of the International Monetary Fund (IMF). He has served as an assessor of financial market infrastructures and adviser on payment systems oversight for many member countries of the IMF. His research interests include cash use, central bank digital currencies, mobile payments, correspondent banking relationship withdrawals, cross-border payments and FinTech.
David Humphrey worked at the Federal Reserve Board and Federal Reserve Bank of Richmond for 16 years, dealing with banking, systemic risk, and payment system issues. His current research remains focused on these topics. Currently he is F. W. Smith Eminent Scholar in Banking at Florida State University and Visiting Fellow at the Payment Cards Center at the Federal Reserve Bank of Philadelphia. He received his Ph.D. in economics from the University of California (Berkeley).
