nep-pay New Economics Papers
on Payment Systems and Financial Technology
Issue of 2017‒07‒30
28 papers chosen by
Bernardo Bátiz-Lazo
Bangor University

  1. How Australians Pay: Evidence from the 2016 Consumer Payments Survey By Mary-Alice Doyle; Chay Fisher; Ed Tellez; Anirudh Yadav
  2. Financial Technology Transformation - Evidence from China?s Value Web By Andy Cheng
  3. Barriers to the functioning of the bitcoin system ? user assessment By Anna Iwona Piotrowska; Dariusz Piotrowski
  4. Limiting the Use of Cash for Big Purchases: Assessing the Case for Uniform Cash Thresholds By Sands, Peter; Weisman, Benjamin; Campbell, Haylea; Keatinge, Tom
  5. E-banking: Opportunities and Challenges in India By Anushriya Bhargava
  6. Digital Trade: Developing a Framework for Analysis By Javier López González; Marie-Agnes Jouanjean
  7. Choice of payment instrument for low-value transactions in Japan By Fujiki, Hiroshi; Tanaka, Migiwa
  8. Measuring Social Connectedness By Michael Bailey; Ruiqing (Rachel) Cao; Theresa Kuchler; Johannes Stroebel; Arlene Wong
  9. Identifying the Effect of Mobile Operating Systems on the Mobile Services Market By Toshifumi Kuroda; Teppei Koguchi; Takanori Ida
  10. Fintech Lending: Financial Inclusion, Risk Pricing, and Alternative Information By Jagtiani, Julapa; Lemieux, Catharine
  11. Speeding up the internet: Regulation and investment in European fiber optic infrastructure By Briglauer, Wolfgang; Cambini, Carlo; Grajek, Michał
  12. Factors attracting banking investment into fintech start-ups: Russian context By Ekaterina Semerikova
  13. The Death of Cash? Not So Fast: Demand for U.S. Currency at Home and Abroad, 1990-2016 By Judson, Ruth
  14. Pay cash, buy less trash? – Evidence from German payment diary data By Eschelbach, Martina
  15. Ether: Bitcoin's competitor or ally? By Jamal Bouoiyour; Refk Selmi
  16. Adoption of a New Payment Method: Theory and Experimental Evidence By Jasmina Arifovic; John Duffy; Janet Hua Jiang
  17. Fintech: Is This Time Different? A Framework for Assessing Risks and Opportunities for Central Banks By Meyer Aaron; Francisco Rivadeneyra; Samantha Sohal
  18. Moving towards "Cashlessness" in an emerging economy: A case study of latest policy steps in India By Dasgupta, Manjira
  19. Benefits of the retail payments card market: Evidence from Russian merchants By Egor Krivosheya; Andrew Korolev
  20. Restricting or Abolishing Cash: An Effective Instrument for Fighting the Shadow Economy, Crime and Terrorism? By Schneider, Friedrich
  21. The impact of wireless fidelity on students? academic performance in a developing economy By KAGISO MACDONALD MOATE; JOSHUA EBERE CHUKWUERE; MULANGA BENNET MAVHUNGU
  22. The Blessing of Cash By Seitz, Franz; Krueger, Malte
  23. Decline management: the case of cash. Policy response in the Netherlands and the Nordic countries By Scholten, Bram
  24. The demand for cash in France: review of evidence By Politronacci, Emmanuelle; Ninlias, Élodie B.; Palazzeschi, Enda E.; Torre, Ghjuvanni
  25. Transaction balances of small denomination banknotes: findings from the introduction of ES2 By Bartzsch, Nikolaus
  26. Statistical properties and multifractality of Bitcoin By Tetsuya Takaishi
  27. Assessing recent increases in cash demand By Jobst, Clemens; Stix, Helmut
  28. Addressing the limitations of forecasting banknote demand By Miller, Callum

  1. By: Mary-Alice Doyle (Reserve Bank of Australia); Chay Fisher (Reserve Bank of Australia); Ed Tellez (Reserve Bank of Australia); Anirudh Yadav (Reserve Bank of Australia)
    Abstract: The Reserve Bank's triennial Consumer Payments Survey (CPS) provides a detailed snapshot of how Australian consumers make payments. The 2016 CPS recorded information on around 17 000 day-to-day payments made by over 1 500 participants during a week. The data show that Australian consumers continued to switch from paper-based ways of making payments such as cash and cheques, towards digital payment methods (particularly debit and credit cards). Cards were the most frequently used means of payment in the 2016 survey, overtaking cash for the first time. Contactless 'tap and go' cards are an increasingly popular way of making payments, displacing cash for many lower-value transactions. Despite these trends, cash still accounts for a material share of consumer payments and is intensively used by some segments of the population. Payments using a mobile phone at a card terminal are a relatively new feature of the payments system and this technology was not widely used at the time of the survey. However, consumers are increasingly using their mobile phones to make online and person-to-person payments. Similarly, consumers are using automatic payments, such as direct debits, more frequently.
    Keywords: consumer payment choice; consumer survey; method of payment; payment systems
    JEL: D12 D14 E42
    Date: 2017–07
  2. By: Andy Cheng (Hang Seng Management College)
    Abstract: With the vigorous development in internet finance, the provisions of electronic platform service for online and mobile payments have become very popular in China. The internet finance has spurred the transformation and promoted innovation of the China?s banking sector, in particular under the policies support and encouragement from the Chinese Authority. At the same time, such development also brings new challenges to the Regulators. This paper examines the current status, regulatory challenges and development of the value web in China.Currently, internet finance in China mainly covers peer-to-peer (P2P) lending, third party online/mobile payment and online/mobile wealth management products. The value web has increased the financial inclusion and lowered the cost of entry for the public, which in return enhance user experience. With the advancement in technology, computing is getting faster and cheaper. Virtualization is driving up efficiency and utilization. Storage devices are growing in terms of capacity while declining in price. Delivery mechanism such as cloud computing also helps to lower costs and drive efficiencies. The internet finance business model is moving to Big Data application, banks expedite to draw close to both internet services and social communication network providers during the transformation process.Information technology has brought a new competitive agent and financial intermediate. Traditionally, banks are the confluence of financial information and fund flows. However, with opening on the operations of internet companies, information gathering and integration become more efficient, extensive and faster than those from banks. While chasing economic of scales, banks in the past have concentrated their resources to those big companies (the head) which can maximize banks? profit contribution. The ?tail?, those small and medium size enterprises with lower transaction amount but high frequency, is being ignored. This provides an excellent opportunity for internet finance to fill the gap. Thus, banks are facing the challenge on financial dis-intermediation during this wave of transformation.On the other hand, crafting enlightened regulation for the internet space, in particular, in relating to financial application is never to be an easy task. It is understood that the current regulatory framework may not be able to keep abreast with the exponential growth in the value web. In view of the challenges, a comprehensive review of the Cyber Security Law in China was conducted in June 2016. Regulators recognize the importance of technological transformation of the value web and carefully adapt the approaches to regulate this new ecosystem in China.
    Keywords: Technological Change, Innovation, Mobile Business
    JEL: M15 O31
    Date: 2017–07
  3. By: Anna Iwona Piotrowska (WSB University in Toru?); Dariusz Piotrowski (Nicolaus Copernicus University in Toru?)
    Abstract: Bitcoin is a system created to service micro-payments in e-commerce, as well as the digital unit of value functioning in the system's environment. When analysed, the behaviour of market participants indicates that the introduction of investment applications of the cryptocurrency, in parallel with its original payment application, had a tremendous impact on the larger-scale functioning of the system. This was aided by the functioning of many trading platforms allowing for exchange into traditional currencies and a high volatility of quotations. Without doubt, bitcoin may be branded a ground-breaking financial innovation or a work of genius. However, the growing, and even global use of bitcoin has brought some of the system's imperfections to light. As the system developed, bitcoin users started to have a better view of the threats to the correct functioning of the system arising from its construction. The paper aims to indicate the main barriers limiting the functioning of the bitcoin system, and its use in payments in particular. The work has adopted the following research hypothesis: In the early stages of bitcoin functioning, users had little awareness of the technological flaws of the system. The study analyses the literature on the subject and the results of a survey carried out among Polish bitcoin users. The analysis confirms of the research hypothesis, as it shows that in the system?s first several years, users identified the following threats to the system?s functioning: the speculative nature of bitcoin, the lack of adequate awareness in society which would allow for a widespread use of the innovation, potential too strict regulation of the cryptocurrencies market or its banning. The authors also present threats to the functioning of the system which in their opinion are of greatest importance at the moment. These relate to the existence of intermediaries, the lack of systemic incentives addressed to bitcoin merchants, growing costs and payment processing time. The authors intend to indicate those aspects of bitcoin's functioning in order to make the use of cryptocurrencies more conscious and contribute to limiting financial risk of system users.
    Keywords: Cryptocurrency, bitcoin, financial innovation, operational risk
    JEL: F65 G20 O31
    Date: 2017–07
  4. By: Sands, Peter; Weisman, Benjamin; Campbell, Haylea; Keatinge, Tom
    Abstract: For all the hype about electronic payment systems, cash remains by far the world’s most popular mechanism. However, over the past year we have seen an intensification of the discussion about the role of cash in society. Cash has great advantages: it is familiar, simple to use and ubiquitously accepted. However, cash also has downsides. Because cash transactions leave no record, cash plays a critical role in money laundering, tax evasion and terrorist financing. This debate generates strong feelings, to the extent that it is sometimes depicted as a “war on cash”. Some decry moves to curtail cash usage as an unwarranted encroachment on individual liberty and a manifestation of an over-reaching state. Others see physical cash as a costly remnant of a pre-digital age that we should get rid of as soon as is feasible. Yet it is also possible to hold a position between these extremes: acknowledging the continued value of cash in modern society, whilst seeking ways to curb its misuse. In 2016 we witnessed a number of policy initiatives aimed at curbing the illicit use of cash. For example, the ECB decided to stop issuing the €500 note due to concerns about its role in illicit finance. India implemented a radical “demonetisation” strategy, abolishing the 500 and 1000 rupee notes in an effort to tackle the scourge of “black money”. Various governments promoted innovative digital payments systems to replace cash, accelerate financial inclusion and reduce benefit fraud...
    Date: 2017
  5. By: Anushriya Bhargava (Pandit deendayal petroleum university , gandhinagar)
    Abstract: The digital age is transforming India and its people at an unprecedented rate and level. Technology is providing ample opportunities to empower more and more individuals each day and hence, to grow endlessly. Not one sector has been left untouched by this technological revolution. The banking industry, which is considered as the backbone of any economy, has for long been governed by traditional ways and means in India. But of late, evidence suggests that e-banking has progressed in various countries, and India is no exception to this. According to one of the reports in 2014, non-cash transactions in India have surpassed 300 billion in number. With the launch of Digital India Program especially, by the P.M of India in July 2015, a propensity to move towards digitalisation at a faster pace, and in an efficient and inclusive manner has been observed among all. Provision of e-services to all in the country through improved online infrastructure and internet penetration and connectivity lies at the heart of this Campaign.Moreover, recently it appears that demonetisation has provided the greatest impetus to cashless transactions across all sectors in the country, including in the banking industry. Reportedly, e-banking has almost become a buzzword after this move and awareness about e-banking services and its usage have significantly increased in both rural and urban areas. In the given scenario, this paper aims to briefly trace the evolution of e-banking in India, its current status, and future opportunities and challenges, in the wake of Digital India and demonetisation, particularly.
    Keywords: E-Banking, India, Opportunities, Challenges, Digitalisation
    Date: 2017–07
  6. By: Javier López González; Marie-Agnes Jouanjean
    Abstract: This paper explores the definition, measurement, and policy implications of digital trade, proposing a tentative typology of digital trade that can be used to unpack transactions and analyse the issues. Digitalisation is changing what and how we trade: from digital delivery to greater physical trade enabled by digital connectivity. Online platforms mean more small packages crossing borders, while new technologies are changing how services are produced and delivered. Underpinning digital trade is the movement of data: data is a means of production, an asset that can itself be traded, and the means through which some services are traded and GVCs are organised. While there is no single definition of digital trade, there is a growing consensus that it encompasses digitally enabled transactions in trade in goods and services which can be either digitally or physically delivered involving consumers, firms and governments. Unpacking trade transactions along these lines using a tentative typology can help in understanding and identifying issues. For example, measuring digital trade poses challenges ranging from identifying transactions that are digitally enabled to the sectoral classification of services in a transaction, and efforts are underway to better reflect digital trade in trade statistics. For trade policy, the increased bundling of goods and services raises issues about which trade rules (GATT or GATS) apply; trade facilitation is ever more critical for just-in-time delivery and GVCs; and the role of data flows in enabling digital trade may require further attention, along with how to ensure that the gains from digital trade are inclusive, within and across countries.
    Keywords: data, digital transformation, Digitalisation, e-commerce, international trade, platforms
    JEL: F02 F13 F19 F42 F55 F68 L14 L22 L81 L86 O14
    Date: 2017–07–27
  7. By: Fujiki, Hiroshi; Tanaka, Migiwa
    Abstract: In this paper, we examine the determinants of the choice of payment instrument for low-value day-to-day transactions. Using Japanese household data from 2007 to 2014, we find that three payment instruments, namely, cash, electronic money, and credit cards, comprise the major payment choices for transactions with values less than 1,000 yen (about 8.7 euros). We also find that high-income, financially sophisticated households in urban areas tend to use both electronic money and cash. Further, family households choosing electronic money and cash do not have higher cash holdings compared with family households exclusively choosing cash, holding all other variables constant. We obtain weak evidence that single-person households choosing electronic money and cash have higher cash holdings compared with single-person households exclusively choosing cash, holding all other variables constant.
    Keywords: cash demand,electronic money
    JEL: E41
    Date: 2017
  8. By: Michael Bailey; Ruiqing (Rachel) Cao; Theresa Kuchler; Johannes Stroebel; Arlene Wong
    Abstract: We introduce a new measure of social connectedness between U.S. county-pairs, as well as between U.S. counties and foreign countries. Our measure, which we call the "Social Connectedness Index" (SCI), is based on the number of friendship links on Facebook, the world's largest online social networking service. Within the U.S., social connectedness is strongly decreasing in geographic distance between counties: for the population of the average county, 62.8% of friends live within 100 miles. The populations of counties with more geographically dispersed social networks are generally richer, more educated, and have a higher life expectancy. Region-pairs that are more socially connected have higher trade flows, even after controlling for geographic distance and the similarity of regions along other economic and demographic measures. Higher social connectedness is also associated with more cross-county migration and patent citations. Social connectedness between U.S. counties and foreign countries is correlated with past migration patterns, with social connectedness decaying in the time since the primary migration wave from that country. Trade with foreign countries is also strongly related to social connectedness. These results suggest that the SCI captures an important role of social networks in facilitating both economic and social interactions. Our findings also highlight the potential for the SCI to mitigate the measurement challenges that pervade empirical research on the role of social interactions across the social sciences.
    JEL: D1 E0 F1 I1 J6 O3
    Date: 2017–07
  9. By: Toshifumi Kuroda; Teppei Koguchi; Takanori Ida
    Abstract: Modern economic theory predicts that tying can serve as a tool for leveraging market power. In line with this economic theory, competition authorities regulate the tying of Microsoft Windows with its Media Player or Internet browser in the EU and Japan. The authorities also take note of the market power of mobile handset operating systems (OSs) over competition in the app and services markets. However, no empirical evidence has thus far been presented on the success of government intervention in the Microsoft case. To assess the effectiveness of government intervention on mobile handset OSs, we identify the extent to which complementarity and consumer preferences affect the correlation between mobile handset OSs and mobile service app markets (mail, search, and map). We find significant positive complementarity between the mail, search, and map services, and mobile handset OSs. However, the elasticities of the mobile handset OS–mobile service correlations are rather small. We conclude that taking action to restrict mobile handset OSs is less effective than acting on mobile services market directly.
    Keywords: Mobile phone, Handset, Internet service, Platform competition
    JEL: L12 L43 L96
    Date: 2017–07
  10. By: Jagtiani, Julapa (Federal Reserve Bank of Philadelphia); Lemieux, Catharine (Federal Reserve Bank of Chicago)
    Abstract: Fintech has been playing an increasing role in shaping financial and banking landscapes. Banks have been concerned about the uneven playing field because fintech lenders are not subject to the same rigorous oversight. There have also been concerns about the use of alternative data sources by fintech lenders and the impact on financial inclusion. In this paper, we explore the advantages/disadvantages of loans made by a large fintech lender and similar loans that were originated through traditional banking channels. Specifically, we use account-level data from the Lending Club and Y-14M bank stress test data. We find that Lending Club’s consumer lending activities have penetrated areas that could benefit from additional credit supply, such as areas that lose bank branches and those in highly concentrated banking markets. We also find a high correlation with interest rate spreads, Lending Club rating grades, and loan performance. However, the rating grades have a decreasing correlation with FICO scores and debt to income ratios, indicating that alternative data is being used and performing well so far. Lending Club borrowers are, on average, more risky than traditional borrowers given the same FICO scores. The use of alternative information sources has allowed some borrowers who would be classified as subprime by traditional criteria to be slotted into “better” loan grades and therefore get lower priced credit. Also, for the same risk of default, consumers pay smaller spreads on loans from the Lending Club than from traditional lending channels.
    Keywords: fintech; Lending Club; marketplace lending; banking competition; shadow banking; credit spreads; credit performance; P2P lending; peer-to-peer lending
    JEL: G18 G21 G28 L21
    Date: 2017–07–18
  11. By: Briglauer, Wolfgang; Cambini, Carlo; Grajek, Michał
    Abstract: In this paper we study how the coexistence of access regulations for legacy (copper)and fiber networks shapes the incentives to invest in network infrastructure. To this end, we develop a theoretical model explaining investment incentives by incumbent telecom operators and heterogeneous entrants and test its main predictions using panel data from 27 EU member states over the last decade. Our theoretical model extends the existing literature by, among other things, allowing for heterogeneous entrants in internet access markets, as we consider both other telecom and cable TV operators as entrants. In the empirical part, we use a novel data set including information on physical fiber network investments, legacy network access regulation and recently imposed fiber access regulations. Our main finding is that more stringent access regulations for both the legacy and the fiber networks harm investments by incumbent telecom operators, but, in line with our theoretical model, do not affect cable TV operators.
    Keywords: Internet access market,Access regulation,Investment,Infrastructure,Next Generation Networks,Broadband,Telecoms,Cable operators and Europe
    JEL: L96 L51
    Date: 2017
  12. By: Ekaterina Semerikova (Moscow School of Management SKOLKOVO)
    Abstract: One of the main problems for any start-up is to find funds for the idea development, product/service creation and promoting it in the market (Binks & Ennew, 1996). In Russia banks form the main demand for fintech products and services. However, there is a belief that Russian fintech ecosystem is not well developed. This research aims at exploring which barriers for fintech start-up ecosystem development are present in Russia as well as necessary and sufficient conditions for a fintech start-up to attract bank as an investor in the context of Russian experience. Qualitative interviews with experts of Russian financial industry, including representatives from banks, a regulatory institute, IT corporations (n=32) as well as quantitative survey of fintech start-ups (n=37) provide data for this research. This study uses crisp set Qualitative Comparative Analysis (csQCA) to examine the presence of complex causality relationships between factors describing fintech start-up and receiving investment from banks. Major findings of this research corroborate the belief that Russian fintech start-up ecosystem is weakly developed. The one reason for that is the gap between what fintech start-ups offer and what market actually needs. Necessary condition for receiving bank?s investments according to crisp set QCA is having a business plan. Other conditions this research explores are sufficient and include: having a core competence in market and consumer understanding, income source as a commission per transaction, payments-related start-up?s products or services, not aiming at owning the business while doing start-up project and also readiness of the product or service. The sufficient conditions might be absent or present in certain configurations. Finally, in Russia banks finding start-up offerings unsatisfactory choose not to invest in them or to create incubators but rather develop fintech internally. This research contributes to the literature on QCA (Ragin et al., 2006; Skaaning, 2007), as well as financial technologies (Shim & Shin, 2016) and develops knowledge on fintech start-ups in particular.
    Keywords: fintech, start-ups, financial services
    JEL: G29
    Date: 2017–07
  13. By: Judson, Ruth
    Abstract: It would seem that physical currency should be fading out as the world of payments is increasingly electronic, with new technologies emerging at a rapid pace, and as governments look to restrictions on large-denomination notes as a way to reduce crime and tax evasion. Nonetheless, demand for U.S. dollar banknotes continues to grow, and consistently increases at times of crisis both within and outside the United States because it remains a desirable store of value and medium of exchange in times and places where local currency or bank deposits are inferior. After allowing for the effect of crises, demand for U.S. banknotes appears to be driven by the same factors as demand for other types of money, with no discernible downward trend. In this work, I review developments in demand for U.S. currency since the collapse of Lehman Brothers in late 2008 with a focus on some new questions. First, what are the factors driving demand for lower denominations, especially $20s, which are the most commonly used in domestic transactions? To what extent can the recent strength in demand be attributed to the long spell of very low interest rates? Finally, for the larger denominations, I revisit the question of international demand: I present the raw data available for measuring international banknote flows and presents updates on indirect methods of estimating the stock of currency held abroad. These methods continue to indicate that a large share of U.S. currency is held abroad, especially in the $100 denomination. As shown in an earlier paper, once a country or region begins using dollars, subsequent crises result in additional inflows: the dominant sources of international demand over the past two decades are the countries and regions that were known to be heavy dollar users in the early to mid-1990s. While international demand for U.S. currency eased during the early 2000s as financial conditions improved, the abrupt return to strong international demand that began nearly a decade ago with the collapse of Lehman Brothers in 2008 has shown only limited signs of slowing. In contrast, the growth rate of demand for smaller denominations is slowing, perhaps indicating the first signs of declining domestic cash demand.
    Keywords: currency,banknotes,dollarization,crisis
    JEL: C82 E4 E49
    Date: 2017
  14. By: Eschelbach, Martina
    Abstract: This research note empirically investigates whether cash can prevent consumers from making needless purchases in unexpected shopping situations. Cash can have a disciplinary effect on short-term consumption because it imposes a strong temporary budget constraint and also reinforces the pain of paying. I use a sample of unexpected shopping situations that were recorded by participants of the Bundesbank’s study on payment behaviour. I find that the probability of a transaction subsequently being declared unnecessary is significantly lower when the consumer had paid the transaction in cash. The results are similar across different socioeconomic groups based on age, gender, education and income. I conclude that restricting the use of cash for transaction purposes can entail a reduction in consumer welfare.
    Keywords: payment behaviour,consumer choice,overspending
    JEL: D12 D14 D18
    Date: 2017
  15. By: Jamal Bouoiyour (CATT); Refk Selmi (CATT)
    Abstract: Although Bitcoin has long been dominant in the crypto scene, it is certainly not alone. Ether is another cryptocurrency related project that has attracted an intensive attention because of its additional features. This study seeks to test whether these cryptocurrencies differ in terms of their volatile and speculative behaviors, hedge, safe haven and risk diversification properties. Using different econometric techniques, we show that a) Bitcoin and Ether are volatile and relatively more responsive to bad news, but the volatility of Ether is more persistent than that of Bitcoin; b) for both cryptocurrencies, the exuberance and the collapse of bubbles were identified, but Bitcoin appears more speculative than Ether; c) there is negative and significant correlation between Bitcoin/Ether and other assets (S\&P500 stocks, US bonds, oil), which would indicate that digital currencies can hedge against the price movements of these assets; d) there is negative tail independence between Bitcoin/Ether and other financial assets, implying that these cryptocurrencies exhibit the function of a weak safe haven; and e) The inclusion of Bitcoin/ Ether in a portfolio improve its efficiency in terms of higher reward-to-risk ratios. But investors who hold diversified portfolios made of stocks or bonds and Ether may face losses over bearish regime. In such situation, stock and bond investors may take a short position on Bitcoin.
    Date: 2017–07
  16. By: Jasmina Arifovic; John Duffy; Janet Hua Jiang
    Abstract: We model the introduction of a new payment method, e.g., e-money, that competes with an existing payment method, e.g., cash. The new payment method involves relatively lower per-transaction costs for both buyers and sellers, but sellers must pay a fixed fee to accept the new payment method. As a result of the network effects, our model admits two symmetric pure strategy Nash equilibria. In one equilibrium, the new payment method is not adopted and all transactions continue to be carried out using the existing payment method. In the other equilibrium, the new payment method is adopted and completely replaces the existing payment method. The equilibrium involving only the new payment method is socially optimal as it minimizes total transaction costs. Using this model, we study the question of equilibrium selection by conducting a laboratory experiment. We find that, depending on the fixed fee charged for the adoption of the new payment method and on the choices made by participants on both sides of the market, either equilibrium can be selected. More precisely, a lower fixed fee for sellers favors very quick adoption of the new payment method by all participants, while for a sufficiently high fee, sellers gradually learn to refuse to accept the new payment method and transactions are largely conducted using the existing payment method. We also find that an evolutionary learning model captures the dynamics of the experimental data well.
    Keywords: Central bank research, Digital Currencies
    JEL: E41 C35 C83 C92
    Date: 2017
  17. By: Meyer Aaron; Francisco Rivadeneyra; Samantha Sohal
    Abstract: We investigate the risks and opportunities to the mandates of central banks arising from fintech developments. Fintech may affect the different areas of responsibility of central banks—mainly monetary policy and financial stability—by changing money demand and by changing the industrial organization of the financial system. We present a competitive strategy framework to help evaluate the likelihood of these changes.
    Keywords: Central bank research, Digital Currencies, Financial Institutions, Payment clearing and settlement systems
    JEL: G1 G2 L1 E42
    Date: 2017
  18. By: Dasgupta, Manjira
    Abstract: On November 08, 2016, India took a decisive step towards going “cashless” by suddenly announcing withdrawal of its existing currency notes of two highest denominations, namely, the Rs. 500/= and the Rs. 1000/=. The move, announced with a suddenness that took the entire nation by surprise, had at its root the purpose of countering the threefold menaces of rampant corruption, counterfeit money and cross-border and internal terror funding. It has generated widespread controversy, the main criticism being that while the policy intent was sound, the execution plan was rather unsound. With one of the highest cash-GDP ratio in the world (close to 11%), India was revealed by RBI (Reserve Bank of India) data as having a staggering share of nearly 86% held in Rs.500/= and 1,000/= notes in the currency stock in circulation (end of FY 2014-15). The cost of “retiring” this volume of currency was therefore, going to be enormous which, as economists like former World Bank Chief Kaushik Basu (Basu 2016) emphasize, could far exceed the gains. In view of the intriguing developments overtaking the Indian economy since the date of submission of the initial abstract, problems that subsequently emerged as considerably more pressing and pertinent have been treated in greater detail in this study. Consequently, the approach and methodology has been substantially modified, although of course retaining the original motivation. With its laudable objectives of striking at the cash-corruption link, India saw, within the first four days of the announcement of demonetization, a staggering surge in bank deposits exceeding USD 52 billion, leading to high hopes of trapping unaccounted or illegal money through this route, a hope that was unfortunately to be belied. Given the enormous problem of Non-Performing Assets plaguing Indian Banks, we have also paid special attention to this potential vast source of unaccounted money in some detail. Next, an overview of India’s vast informal sector has been given, and the guidelines by Schneider and Williams (2013) and Schneider and Buehn (2008) have been used in an attempt to estimate the shadow economy in India using cointegration in a MIMIC framework. Finally, not only did India’s decision to demonetize have enormous economic or financial implications, but it also has had huge social and political ramifications that must be recognized.
    Keywords: India,Demonetization,Cashlessness,Informal Sector,Shadow Economy
    JEL: E26 E42 E58 E65 G00 O17
    Date: 2017
  19. By: Egor Krivosheya (Moscow school of management SKOLKOVO); Andrew Korolev (Moscow school of management SKOLKOVO)
    Abstract: This article evaluates merchants' benefits resulting from the participation in the retail payments market. Using surveys to obtain a representative sample of 800 traditional (offline) Russian merchants, the article finds significant, robust evidence in favor of positive merchant' benefits. This study further separates the benefits into direct and opportunity finding that the non-welfare improving regulatory initiatives might result from the failure to account opportunity benefits of merchants. This article also examines the factors affecting the level of merchants' benefits. Results show that factors affecting the value of benefits and the probability to accept payment cards differ. Findings imply that unbalanced intervention may be detrimental to the agents' welfare and propose a mechanism for ex-ante evaluation of the effect of shocks and interventions.
    Keywords: Retail payments; payment cards; merchant?s acceptance; benefits; financial services.
    JEL: G21 E42 D53
    Date: 2017–07
  20. By: Schneider, Friedrich
    Abstract: This paper has four goals: First, the use of cash as a possible driving factor of the shadow economy is investigated. Second, the use of cash in crime, here especially in corruption, is also econometrically investigated. The influence is somewhat larger than on the shadow economy, but it is certainly not a decisive factor for bribery activities. Some figures about organized crime are also shown; the importance of cash is diminishing. Third, some remarks about terrorism are made and here a cash limit doesn’t prevent terrorism. Fourth, some remarks are made about the restriction or abolishment of cash on civil liberties, with the result that this will extremely limit them. The conclusion of this paper is that cash has a minor influence on the shadow economy, crime and terrorism, but potentially a major influence on civil liberties.
    Keywords: cash,cash limit,shadow economy,crime,corruption,transnational crime organizations,financial proceeds,money laundering,illegal cross-border flows,tax fraud figures
    Date: 2017
  21. By: KAGISO MACDONALD MOATE (North West University); JOSHUA EBERE CHUKWUERE (North West University); MULANGA BENNET MAVHUNGU (North West University)
    Abstract: A wireless technology recently has become our life saver in the communication process and also in sharing of information. Private and public institutions, individuals, businesses, non-profit organisations, government agencies and other corporate have already invested heavily and grown the wireless technology operations. Wireless Fidelity (Wi-Fi), is the common term in the process of connection local area network (LAN) with high frequency wireless. Wi-Fi allows electronic devices to connect to LAN and enables Internet access to devices such as the laptops, smartphone and tablets. Institutions in developing countries already make it possible to connect the LAN and also enable the Wi-Fi to allow the individual to connect their personal devices. However, the better Wi-Fi speed of upload and download provided by the institution, also increase opportunities to achieve their teaching and learning objectives, while the poor infrastructure of Wi-Fi limits the opportunities of achieving learning objectives. This study was conducted from the North-West University (NWU) Mafikeng Campus, with the aim to determine the impact of Wi-Fi (as new connectivity designation) in the academic performance of the students in a developing country. The study also determines how many students? use this technology for school related matter and how many use it more for personal reasons than academic. For the purpose of this study, data was collected using quantitative research method through questionnaire. The sample size for this research involved 370 participants. The findings indicate that majority of students find Wi-Fi beneficially to their studies, since it enables them to access Internet in different spot around campus and allow them to submits academic work on time and also enable communication with classmates and lecturers.
    Keywords: Wi-Fi, Wireless technology, Internet, Academic performance, Students
    Date: 2017–07
  22. By: Seitz, Franz; Krueger, Malte
    Abstract: This study investigates the benefits of cash in a general context. First, we explicitly address the arguments of cash critics, who are calling for cash to be abolished altogether. Second, we show that cash plays a crucial role in the current two-tier banking system. Third, we are discussing a number of selected benefits of cash, inter alia its use in financial crisis and the provision of privacy. We conclude that the abolition of cash would have major drawbacks and could entail undesirable consequences.
    Keywords: cash,payments,cash abolition,monetary policy
    JEL: D12 D61 E41 G21 O33
    Date: 2017
  23. By: Scholten, Bram
    Abstract: The Netherlands and the Nordic countries are faced with a rapid decline in the use of cash. Sooner or later, they will be confronted with the question whether cash remains necessary as well-functioning means of payment for POS transactions. This paper focuses on how this issue is addressed in the Netherlands and the Nordics, based on answers to a detailed questionnaire submitted to the central banks of these countries, covering the three main elements of the well-functioning of cash: paying in cash, drawing cash from, and lodging cash in one’s bank account. All central banks seem to believe that at least for the foreseeable future, cash remains needed as well-functioning means of payment. Leaving legal issues aside, main arguments are that for part of the population, use of electronic payment instruments is not, or not always, possible or desirable. In addition, cash functions as fall back in case of temporary breakdowns in the functioning of, or trust in, the electronic payment system. In Norway and the Netherlands, this view seems shared by the government and society at large. As far as Denmark, Finland and Sweden are concerned, a broad consensus and a general policy to ‘manage’ the decline of cash have not or not yet materialized. Once authorities and society at large are convinced that cash remains needed as well-functioning means of payment, it has to be determined whether, and if so which, specific action is required to keep cash well-functioning as means of payment. In this respect, unlike the market approach (at least so far) favored in Sweden, Norway and the Netherlands adopted a pro-active approach, with the idea that it is easier to prevent unwelcome developments than to correct them once they have occurred. In the Netherlands, agreement has been reached on a cooperative approach.
    Keywords: cash,cashless society,legal tender
    Date: 2017
  24. By: Politronacci, Emmanuelle; Ninlias, Élodie B.; Palazzeschi, Enda E.; Torre, Ghjuvanni
    Abstract: Despite the well-known difficulties to measure national euro circulations within the euro area, several methods have been used to estimate the national demand for euro banknotes in France, such as key-based calculations (ECB capital), approaches using average return time of banknotes or extrapolated data from legacy currencies historical trends, methods relying on the replacement indicators of the first euro banknote series. This paper proposes an update of these approaches and complements them with two additional methods. First, exportations of banknotes data enable to infer the French national circulation from the difference between banknotes issued by the Banque de France and the banknotes it shipped outside the euro area, directly or via the French wholesale bank. Second, a “bottom-up” approach can be built-up, where the cash holdings of the different institutional sectors (MFIs, households, non-financial corporations) are summed up in order to estimate the use of cash for transactional purpose. Bearing in mind that those various approaches do not always separate the hoarding from the transactional purposes nor take into account banknotes migrations flows across countries, the analysis of the similarities and differences between those several methods sheds light on the French national demand for cash by giving hints on both the low and the top ends of the range.
    Keywords: banknotes in circulation,cash usage,payment instruments
    JEL: E41
    Date: 2017
  25. By: Bartzsch, Nikolaus
    Abstract: At the end of 2015, the Deutsche Bundesbank had issued a total net amount of just over €45 billion in €20 banknotes. In statistical terms, each resident living in Germany was therefore issued with around 30 banknotes of this denomination. Up until now, it was not clear how many of these German-issued euro banknotes are actually used for payment purposes. Owing to the introduction of the new Europa series of banknotes on 25 November 2015, it was possible to estimate the volume of €20 banknotes that are held for transaction purposes both in Germany and outside the euro area. The estimation of the volume of €20 banknotes held for domestic transaction purposes (known as the domestic transaction balance) is primarily based on the observed return flows of the old series (ES1) of €20 banknotes received by the Deutsche Bundesbank. The cash balance of €20 banknotes held for domestic transaction purposes was estimated at around €8.5 billion at the end of October 2015. This means that only 19% of the total (net) amount of €20 banknotes issued by the Deutsche Bundesbank up to the end of October 2015 were used for transaction purposes within Germany. The remaining 81% has either migrated abroad, been hoarded or got lost. The results of the analysis are also important as a means of explaining the just over €36 billion worth of ES1 €20 banknotes which are still outstanding in the Deutsche Bundesbank's balance sheet. Given that the cash balance held for domestic transaction purposes has since been almost fully replaced, it is no longer to be expected that ES1 banknotes will flow back to the Deutsche Bundesbank in any sizeable amounts. The volume of German-issued €20 banknotes – officially stemming from banknote shipments by the Deutsche Bundesbank – held for transaction purposes outside the euro area was estimated at just over €3 billion at the end of July 2016 using the biometric method. This estimate represents a lower level for the actual cash balance held for transaction purposes, as it does not incorporate banknote exports resulting from foreign travel and cash amounts sent abroad. It is derived from cumulated shipments of ES2 €20 banknotes up to the end of July 2016 and the value of the ES1 and ES2 €20 notes deposited in July 2016 at the shipment branches. In terms of the Deutsche Bundesbank's cumulated net shipments of €20 banknotes in the amount of around €12 billion at the end of 2015, the estimated cash balance (resulting from shipments) held for transaction purposes outside the euro area accounts for around 28%.
    Keywords: euro banknotes,biometric method,foreign demand,transaction balances,hoarding,small denominations,ES2
    JEL: C49 E41 E58
    Date: 2017
  26. By: Tetsuya Takaishi
    Abstract: Using 1-min high frequency returns of Bitcoin prices, we investigate statistical properties and multifractality of a Bitcoin time series. We find that the 1-min return distribution is fat-tailed and kurtosis largely deviates from the Gaussian expectation. Although with large time scales, kurtosis is anticipated to approach the Gaussian expectation, we find that convergence to that is very slow. Skewness is found to be negative at small time scales and becomes consistent with zero at large time scales. We also investigate daily volatility-asymmetry by using GARCH, GJR, and RGARCH models and find no evidence of volatility asymmetry. On exploring multifractality using multifractal detrended fluctuation analysis, we find that the Bitcoin time series exhibits multifractality. The sources of multifractality are also investigated and it is confirmed that both temporal correlation and the fat-tailed distribution contribute to the multifractality, and the degree of multifractality for the time correlation is stronger than that for the fat-tailed distribution.
    Date: 2017–07
  27. By: Jobst, Clemens; Stix, Helmut
    Abstract: Contrary to predictions that demand for cash will decline with the increased availability and use of non-cash payment means, currency demand has increased in the Euro area and the US over the past 15 years. Against this background, this short article summarizes recent findings from Jobst and Stix (2017), who provide a discussion of trends in currency demand, and presents additional descriptive evidence. In a first step, currency demand over a longer period is analyzed for the USA, Germany and the Euro area. This is helpful for understanding and assessing recent trends. In a second step, evidence from 70 economies is analyzed for the period from 2001 to 2014. This broader perspective informs us about the development for currencies that do not circulate internationally. Our descriptive account provides several insights: (i) Recent increases for the euro and the US dollar are strong even if seen over a 100 year horizon. (ii) Over the period from 2001 to 2014 currency demand has increased in many economies. (iii) In economies where currency demand increased, the increase typically happened after the start of the economic and financial crisis of 2007/08. What are the drivers of recent increases in currency demand? Jobst and Stix (2017) estimate panel money demand models, accounting for changes in GDP, interest rates and shadow economic activities. In economies with high GDP, a substantial share of the increase cannot be explained by changes in interest rates or in the size of the shadow economy. We conjecture that the unexplained component is related to increased hoarding.
    Date: 2017
  28. By: Miller, Callum
    Abstract: Central banks need to forecast banknote demand. It determines the number of notes they need printed and the future distribution network required. Yet forecasting demand is an inherently complex problem - banknotes are anonymous bearer instruments and so many of the sources of demand are difficult to research. This paper sets out a framework for identifying and assessing drivers likely to influence banknote demand. It presents, for the first time, the findings from an econometric model, looking at the past relationship between demand for Bank of England notes and a range of economic variables and cash industry statistics, to help forecast future demand. But this approach has its limitations. There will be determinants of demand not included in the model. Furthermore, what is to say that past relationships will hold into the future? Perhaps we are now approaching a point of inflection - a paradigm shift in the demand for cash that causes the pre-existing relationships to break down. To account for this, central banks must continue to research cash demand, its current and future drivers, and how significant they might be going forward. They must look for leading indicators that suggest a break with the past, and attempt to understand how, and when, the impact of technological change may significantly change the trajectory of cash use. This paper will set out a structure for capturing all of this information and using it to make judgements on the future of cash. Whilst it might improve central bank’s forecasting capability, and thus the basis for policy decisions, it will not eliminate all uncertainty. Therefore, central banks must retain flexibility, and ensure the wider cash industry does as well. There is a future for cash but we must constantly be alert to events that might change what that future looks like.
    Date: 2017

This nep-pay issue is ©2017 by Bernardo Bátiz-Lazo. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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