Cash Is King: The Role Of Financial Infrastructure In Digital Adoption

Bhavya Agarwal, Nirupama Kulkarni and S.k Ritadhi
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Bhavya Agarwal: Citi, USA
S.k Ritadhi: Ashoka University

Working Papers from Centre for Advanced Financial Research and Learning (CAFRAL)

Abstract: This paper examines whether a one-time, extensive, but temporary shock to cash supply can affect the adoption of digital payments. We exploit the 2016 demonetization episode in India, which overnight discontinued 86% of cash in circulation. Using novel administrative data from retail debit card transactions, we identify a 12% increase in digital payments in areas adversely affected by the cash shortage, which persisted well after the restoration of cash supply. Examining mechanisms, we find a limited role for social networks and stronger support for learning by doing. Further, information frictions hinder the immediate adoption of digital payments.

JEL-codes: E5 (search for similar items in EconPapers)
Pages: 89
Date: 2023-08
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Published in The Review of Corporate Finance Studies

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Journal Article: Cash Is King: The Role of Financial Infrastructure in Digital Adoption (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:ris:cafral:022278

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