Research Discussion Papers, Bank of Finland
No 22/2015:
Cash management and payment choices: a simulation model with international comparisons
Carlos Arango ()
, Yassine Bouhdaoui ()
, David Bounie ()
, Martina Eschelbach ()
and Lola Hernandez ()
Abstract: Despite various payment innovations, today, cash is still
heavily used to pay for low-value purchases. This paper proposes a
simulation model based on two optimal cash management and payment policies
in the payments economics literature to explain cash usage. First, cash is
preferred to other payment instruments whenever consumers have enough
balances at hand. Second, it is optimal for consumers to hold a stock of
cash for precautionary reasons. Exploiting survey payment diaries from
Canada, France, Germany and the Netherlands, the results of the simulations
show that both optimal policies are well suited to understand the high
shares of low-value cash payments in Canada, France and Germany. Yet, they
do not perform as well in the case of the Netherlands, overestimating the
share of low-value cash payments. We discuss how the differences in payment
markets across countries may explain the limitations of the two optimal
policies.
Keywords: cash management; payment choices; international comparison; (follow links to similar papers)
JEL-Codes: C61; E41; E47; (follow links to similar papers)
29 pages, November 25, 2015
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