Central Banks and Payment Instruments: a Serious Case of Schizophrenia

Leo van Hove

MPRA Paper from University Library of Munich, Germany

Abstract: This article analyses the competition between cash and payment cards against the backdrop of the dual role of central banks - as issuers of cash and as institutions with a mandate to foster the efficiency of payment systems in general. It is argued that this dual role results in a number of policy dilemmas, namely concerning pricing, traceability of banknotes and the choice of denominations of coins and banknotes. On a general level, the article argues that central banks should place greater emphasis on improving the efficiency of retail payments and less on protecting their self-interest. More concretely, the article repeats the suggestion - originally put forward in VAN HOVE & VUCHELEN (1996) - that the ECB should place the upper limit of its banknote series at EUR 50 instead of EUR 500. It is also argued that policy makers should explicitly foster the use of cost-based pricing and in particular create a legal environment that makes it possible for commercial banks to start using it.

Keywords: payment instruments; central banks; cash; banknotes; payment cards; public policy; efficiency (search for similar items in EconPapers)
JEL-codes: E6 G2 (search for similar items in EconPapers)
Date: 2007-06
New Economics Papers: this item is included in nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Published in COMMUNICATIONS & STRATEGIES 66 (2007): pp. 19-46

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:5281

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