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Forecasting banknote returns in a changing payments environment
Journal of Payments Strategy & Systems,
16
(2),
120-136
(2022)
Abstract
This paper provides a model for forecasting cash returns to central banks. Using data from Ireland, the study identifies a recent structural shift in the relationship between banknote returns and cashbased personal consumption expenditure, likely due to the adoption of contactless payments. Projections of banknote returns are informed by three elements: forecasts of personal consumption, the cash share of that spending, and the returns ratio — that is the ratio of (the log of) banknote returns to the (log of) cash-based personal consumption. To illustrate the modelling approach, the study considers the effects of future payment instrument choices and of COVID-19 on consumption to forecast cash returns for Ireland up to 2030.
Keywords: banknote returns; contactless payments; COVID-19
The full article is available to subscribers to the journal.
Author's Biography
David Cronin is an advisor in the Irish Economics Analysis Division at the Central Bank of Ireland, an adjunct professor at Cork University Business School, and a research affiliate at the Economic and Social Research Institute. His research interests lie in the areas of payments, monetary reform and macroeconomic policy. He holds a PhD in economics from University College Cork.
Niall Mcinerney is a senior economist in the Irish Economic Analysis Division of the Central Bank of Ireland. His research focuses on the development of structural macroeconomic models of the Irish economy. Prior to joining the Bank, he was a research fellow at the Economic and Social Research Institute and a lecturer in economics at National University of Ireland, Galway. He holds a PhD in international macroeconomics from Trinity College Dublin.
