Efficient payments: How much do they cost for the Central Bank?

Yassine Bouhdaoui and D. Bounie

Economic Modelling, 2012, vol. 29, issue 5, 1579-1584

Abstract: Previous works related to optimal denominations for coins and banknotes consider that the “principle of least effort” that defines an efficient payment is the most important criterion for two main reasons. Firstly, it is more convenient for transactors and, secondly, it limits the production costs of denominations incurred by the central bank. Exploiting production cost data for the U.S. currency system in 2010, we show using simulations that efficient payments actually increase the annual production costs of the Federal Reserve by $156 million. As a consequence, we raise a larger issue for central banks which consists in issuing an efficient denominational mix that is more convenient for transactors and that reduces the production costs of denominations.

Keywords: Currency denominations; Efficient payments; Cost of cash transactions; Production costs; Central banks (search for similar items in EconPapers)
JEL-codes: E4 E47 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:29:y:2012:i:5:p:1579-1584

DOI: 10.1016/j.econmod.2012.04.026

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