2022-02-03-IMF-Falling_Use_of_Cash_and_Demand_for_Retail_Central_Bank_Digital_Currency_25页_387kb

Falling Use of Cash and Demand for Retail Central Bank Digital Currency

Summary

The working paper analyzes the falling use of cash across 25 countries over the period 2012-2019 and its relationship with the demand for retail central bank digital currency (CBDC).

By 2019, most countries witnessed a decline in cash's share of the payment market, which includes cash, credit/debit cards, and electronic money. Countries such as Brazil, India, and Russia experienced significant declines (absolute reduction), while countries with low initial cash shares, like Korea, Sweden, and the U.S., saw relatively smaller reductions.

The primary driver behind this trend appears to be changes in population age structure revealed through payment diary studies. Younger adults display a stronger revealed preference for cash substitutes (cards or e-money) compared to older adults, leading to a gradual decline in cash use as populations age.

While further declines in cash use could occur with CBDC issuance, the paper suggests that CBDC is likely to primarily affect existing cash substitutes (cards). Countries with already low cash use may see a lesser impact on their cash levels due to a slowing substitution process.

The key incentives for CBDC adoption by users and merchants revolve around transaction costs:

• Lower or no user fees compared to cards (which are typically paid by merchants)
• Elimination of merchant interchange fees
• Reduction of merchant working capital costs through immediate access to funds received

If designed to match or exceed card benefits regarding convenience and speed, while offering specific advantages in transaction cost savings and working capital reduction, CBDC could potentially be adopted rapidly. Card providers might counter this by reducing their interchange fees, providing immediate fund access, or enhancing their own fast payment services.

However, the paper emphasizes that the main impact of CBDC will likely be on replacing existing cash substitutes, not necessarily further reducing cash use. The slow, relatively predictable decline in cash's share suggests that as long as cash provides desirable attributes (privacy, no transaction fees, anonymity, universal acceptance) it will persist.