Abstract

Cash Demand and Cash Innovations in Austria

Peter Brandner and Gert D. Wehinger

Austrian Institute of Economic Research

There are various reasons for holding cash. While the transactions motive is the most prominent one in theory, empirical findings indicate that cash is hoarded at home and abroad to a large extent. As far as transactions holdings are concerned, innovations in cashless payments ("cash innovations") such as payment cards and electronic money can be expected to reduce such holdings quite substantially. Applying structural time series techniques, we present some empirical findings for cash in circulation in Austria, where we show that cash innovations are partially responsible for the observed downward trend in the growth of cash. Nevertheless, comparing our results also to household surveys and other studies, we conclude that such effects of cash substitutes will not jeopardise the banknote issuance of central banks in the near future, since hoarding and shadow economy activities still make up for an important part of cash in circulation.