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Excess demand for banknotes in Malta

Brian Micallef and Tiziana Gauci ()

No PP/02/2022, CBM Policy Papers from Central Bank of Malta

Abstract: The amount of banknotes issued by the Central Bank of Malta has persistently exceeded the allocation to the Bank from the ECB’s banknote allocation key, resulting in a corresponding net liability within the Eurosystem, a trend that has exacerbated since the outbreak of the COVID-19 pandemic. High demand for banknotes has also been experienced in the euro area in recent years even though the use of cash for retail transactions has decreased. This is referred to as “paradox of banknotes†and occurs because currency is not only used for daily transactions but also as a store of value while it is also influenced by demand from citizens outside the euro area. Part of the excess demand for banknotes in Malta can be attributed to the fact that the ECB banknote key is based on estimates that do not accurately reflect the strong population and economic growth registered in Malta since 2016. Structural factors also play a part in explaining the demand for banknotes with population growth emerging as a common factor for all countries experiencing an excess demand for banknotes. On the other hand, the evidence for demand arising from tourism is relatively weak.

JEL-codes: E20 E41 E58 (search for similar items in EconPapers)
Pages: 22 pgs
New Economics Papers: this item is included in nep-eec, nep-mon and nep-pay
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