Goodhart, Charles and Krueger, Malte (2001) The impact of technology on cash usage. Financial Markets Group Discussion Papers (374). Financial Markets Group, The London School of Economics and Political Science, London, UK.
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Abstract
“Cash is dirty ... Cash is heavy ... Cash is inequitable ... Cash is quaint, technologically speaking ... Cash is expensive ... Cash is obsolete.” This is how James Gleick (1996) summarises the case against cash. By contrast, electronic means of payment are clean, technologically advanced and supposedly cheap and convenient. Thus, it is not surprising that industry representatives are optimistic that currency will be replaced by technologically more advanced electronic transfers and e-moneys of assorted varieties (Capie and Gormez 2000, Craig 1998). In a similar vein, monetary economists like K. Dowd (1997), B. Friedman (1999) or M. King (1999) have predicting the imminent disappearance of currency from common usage. We are sceptical about the accuracy of these predictions. Indeed we believe that currency, notes and coin, may be better protected against fundamental changes induced by IT than many other financial products and mechanisms. For example, the operation of equity markets has been, and will continue to be, revolutionised by IT. In the second Section of this paper we examine the particular characteristics of currency, notably its acceptability, anonymity and simplicity, and compare these characteristics with those of electronic alternatives. In the third Section of the paper we examine how such characteristics have affected the relative costs of using differing payment media, and the returns that may be expected from producing and circulating e-money. In this Section we examine micro-level data on the cost structure of using differing means of payment and highlight the crucial role of security concerns. In the fourth Section we shall review the macro-level time series data on trends in currency usage, and their determinants, in the main developed countries. We shall note that relative currency usage, measured as the ratio of currency outstanding to GDP, has in a few cases risen, and has in most countries only declined slowly. Absolute usage of currency, both in nominal and real terms, i.e. after deflation by an appropriate price index, generally continues to rise. By comparison, the outstanding value of e-money is minuscule. We conclude, in Section 5, that expectations of the demise of currency at the hands of IT are distinctly premature.
| Item Type: | Monograph (Discussion Paper) |
|---|---|
| Official URL: | https://www.fmg.ac.uk/ |
| Additional Information: | © 2001 The Authors |
| Divisions: | Financial Markets Group |
| Subjects: | T Technology > T Technology (General) H Social Sciences > HG Finance H Social Sciences > HB Economic Theory |
| JEL classification: | E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E40 - General |
| Date Deposited: | 28 Aug 2009 11:24 |
| Last Modified: | 11 Dec 2024 18:29 |
| URI: | http://eprints.lse.ac.uk/id/eprint/25048 |
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