On the Stabilizing Role of Cash for Societies

Franz Seitz and Gerhard Rösl

MPRA Paper from University Library of Munich, Germany

Abstract: In this paper, we focus on the stabilizing role of cash from a society-wide perspective. Starting with conceptual remarks on the importance of money for the economy in general, special attention is paid to the unique characteristics of cash. As these become apparent especially during crisis periods, a comparison of the Great Depression (1929 – 1933) and the Great Recession 2008/09 shows the devastating effects of a severe monetary contraction and how a fully elastic provision of cash can help to avoid such a situation. We find interesting similarities to both crises in two separate case studies, one on the demonetization in India 2016 and the other on cash supply during various crises in Greece since 2008. The paper concludes that supply-driven cash withdrawals from circulation (either by demonetization or by capital controls) destabilize the economy if electronic payment substitutes are not instantly available. However, as there is no perfect substitute for cash due to its unique properties, from the viewpoint of the society as a whole an efficient payment mix necessarily includes cash: It helps to stabilize the economy not only in times of crises in general, no matter which government is in place. Consequently, it should be the undisputed task of central banks to ensure that cash remains in circulation in normal times and is provided in a fully elastic way in times of crisis.

Keywords: Cash; banknotes; money; crises; stabilization (search for similar items in EconPapers)
JEL-codes: E41 E51 E58 (search for similar items in EconPapers)
Date: 2022-06
New Economics Papers: this item is included in nep-his, nep-mon and nep-pay
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Working Paper: On the stabilizing role of cash for societies (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:113784

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