Developments in Banknotes in Circulation since the Start of the Pandemic

Kento Yoshizawa, Kohei Maehashi, Hiroaki Yanagihara, Yoichi Kadogawa and Masakazu Inada
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Kento Yoshizawa: Bank of Japan
Kohei Maehashi: Bank of Japan
Hiroaki Yanagihara: Bank of Japan
Yoichi Kadogawa: Bank of Japan
Masakazu Inada: Bank of Japan

No 21-E-6, Bank of Japan Review Series from Bank of Japan

Abstract: In recent years, a phenomenon referred to as the gparadox of banknotes h has been observed worldwide: despite reduced opportunities to pay in cash due to the increase in cashless payments such as payment by credit card, the amount of banknotes in circulation has increased. Reasons that have been highlighted include the decline in the opportunity costs of holding cash amid the low interest rate environment as well as increased precautionary demand due to heightened economic uncertainty. Since the onset of the COVID-19 pandemic, this paradox has become more pronounced: cash in circulation has jumped even though opportunities to use cash have dropped sharply due to the economic downturn and the increase in e-commerce due to stay-at-home consumption. Our empirical analysis suggests that public health measures led to a significant increase in cash in circulation, with the effect being greatest immediately after the outbreak of pandemic and waning thereafter. It thus appears that developments in banknotes in circulation have been affected by precautionary demand for cash due to the heightened uncertainty brought about by the pandemic.

Keywords: Banknotes; Cashless payments; COVID-19 (search for similar items in EconPapers)
JEL-codes: E41 E50 E51 E58 (search for similar items in EconPapers)
Date: 2021-12-10
New Economics Papers: this item is included in nep-ban, nep-mac, nep-mon and nep-pay
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Citations: View citations in EconPapers (2)

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