Cost Benefit Analysis of Restricting Cash Usage

A paper by the Einaudi Institute for Economics and Finance (EIEF), ‘Cash: A Blessing or a Curse?’ ¹, examines what happened in Mexico when changes to cash availability were made. What happened to crime? What were the costs and benefits of the changes? Although there are a number of caveats about the findings, the main conclusion is that the benefits of restricting cash are less than the costs.

The academics focused on Mexico because it has good household and firm level data on the access to and use of cash. It made two policy changes that, effectively, restricted the use of cash to some groups in society. Furthermore, there is good data available estimating the cash-credit elasticity of substituting cash, which is key if you want to analyse the consequences of eliminating cash for cash-only households, a big group in Mexican society.