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A Tale of Two Countries: Cash Demand in Canada and Sweden

Walter Engert (), Ben Fung () and Björn Segendorf ()
Additional contact information
Walter Engert: Bank of Canada
Ben Fung: Bank of Canada
Björn Segendorf: Financial Stability Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden

No 376, Working Paper Series from Sveriges Riksbank (Central Bank of Sweden)

Abstract: Cash is being used less and less for making payments in many countries, including Canada and Sweden, which might suggest that cash will eventually disappear. However, cash in circulation in most countries, including Canada, has been stable for decades, and even rising in recent years. In contrast, aggregate cash demand in Sweden has been falling steadily. This paper explains these differences between Canada and Sweden by focusing separately on the transactions demand for cash and on the store-of-value demand. We find a long-term downward trend in small-denomination bank notes relative to gross domestic product in both Canada and Sweden. This reflects similar experiences in decreasing cash use for transactions over time due to the adoption of payment innovations. This means that payment innovations and diffusion are not sufficient to explain why aggregate cash demand has been declining rapidly in Sweden but not in Canada. Instead, the difference in the trends of cash demand between these two countries is due more to the behaviour of larger-denomination, store-of-value bank notes. Finally, we identify influences and frictions that help explain the persistent decline in the demand for larger bank notes in Sweden relative to Canada.

Keywords: Bank notes; Digital currencies and fi ntech; Financial services; Payment clearing and settlement systems. (search for similar items in EconPapers)
JEL-codes: E40 E41 E42 E50 (search for similar items in EconPapers)
Pages: 54 pages
Date: 2019-08-01
New Economics Papers: this item is included in nep-ban, nep-eec, nep-mac, nep-mon and nep-pay
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:rbnkwp:0376

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