Research Discussion Papers, Bank of Finland
No 1/2000:
Substitution of noncash payment instruments for cash in Europe
Jussi Snellman ()
, Jukka Vesala and David Humphrey
Abstract: The substitution of noncash (check, giro, and credit and
debit card) payments for cash transactions is difficult to gauge because
there are no data series on the actual value or volume of cash transactions
in any country. However, determining the degree of cash substitution is
important because it will negatively affect government seigniorage revenue
and, if cash use falls fast enough, may require tax revenues to redeem
excess currency holdings. We utilise a novel method for approximating the
volume of cash transactions using public information on currency stocks and
noncash payments. Applying this method, we estimate how cash has been
substituted by other payment instruments in 10 European countries. We also
provide a forecast of future cash use by country. We find that the trend in
cash substitution across countries is quite similar. However, the countries
themselves are at significantly different stages of this substitution
process. The spread of debit and credit card payments has been the key
factor behind the substitution away from cash as use of e-cash innovation
is still in its infancy. Country-specific differences in the substitution
process are largely explained by differences in the level of implementation
of each country’s card payment technology.
Keywords: cash substitution; learning curves; seigniorage; (follow links to similar papers)
42 pages, March 1, 2000
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