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

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

No 1874, Working Paper Series from European Central Bank

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 Classification: C61, E41, E47

Keywords: cash management; international comparison; payment choices (search for similar items in EconPapers)
Date: 2016-01
New Economics Papers: this item is included in nep-cmp and nep-pay
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 (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)
Working Paper: Cash Management and Payment Choices: A Simulation Model with International Comparisons (2013)
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