Implications of the expanding use of cash for monetary policy

15-05-2017

Financial innovation seems to have had little impact on the oldest medium of transaction, namely cash. The ratio of currency in circulation to GDP has increased in most countries, independently of the continuing spread of cashless transactions. Taking account of the increase in cash holdings can lead to a different view of the monetary policy stance over longer periods of time. Holding the size of the overall balance sheet constant is equivalent to a gradual exit when currency holdings continue to increase.

Financial innovation seems to have had little impact on the oldest medium of transaction, namely cash. The ratio of currency in circulation to GDP has increased in most countries, independently of the continuing spread of cashless transactions. Taking account of the increase in cash holdings can lead to a different view of the monetary policy stance over longer periods of time. Holding the size of the overall balance sheet constant is equivalent to a gradual exit when currency holdings continue to increase.

Externe Autor

Daniel GROS (CEPS, Centre for European Policy Studies)