Cash Management and Payment Choices: A Simulation Model with International Comparisons

Carlos Alberto Arango, Yassine Bouhdaoui, David Bounie, Martina Eschelbach and Lola Hernandez

Staff Working Papers from Bank of Canada

Abstract: Despite various payment innovations, today, cash is still heavily used to pay for low-value purchases. This paper develops a simulation model to test whether standard implications of the theory on cash management and payment choices can explain the use of payment instruments by transaction size. In particular, using diary survey data from Canada, France, Germany and the Netherlands, we test the assumption that cash is still the most efficient payment instrument, and the idea that people hold cash for precautionary reasons when facing uncertainty about their future purchases. The results of the simulations show that these two factors are significant determinants of the high shares of low-value cash payments in Canada, France and Germany. Yet, they are not so crucial in the Netherlands, which exhibits a significant share of low-value card transactions. We discuss how the differences in payment markets across countries may explain the differences in the performance of the model.

Keywords: Bank notes; Financial services; International topics (search for similar items in EconPapers)
JEL-codes: C61 E41 E47 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2013
New Economics Papers: this item is included in nep-eur and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Working Paper: Cash management and payment choices: a simulation model with international comparisons (2016)
Working Paper: Cash management and payment choices: a simulation model with international comparisons (2015)
Working Paper: Cash Management and Payment Choices: A Simulation Model with International Comparisons (2014)
Working Paper: Cash Management and Payment Choices: A Simulation Model with International Comparisons (2014)
Working Paper: Cash management and payment choices: A simulation model with international comparisons (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:13-53

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