Cash management and payment choices: a simulation model with international comparisons

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

No 22/2015, Bank of Finland Research Discussion Papers from Bank of Finland

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.

JEL-codes: C61 E41 E47 (search for similar items in EconPapers)
Date: 2015
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https://www.econstor.eu/bitstream/10419/212330/1/bof-rdp2015-022.pdf (application/pdf)

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 (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)
Working Paper: Cash Management and Payment Choices: A Simulation Model with International Comparisons (2013)
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