Impact of the Use of Cash on Demand for a Retail CBDC

A new IMF paper ¹ concludes that the main influence on the demand for cash, and why demand is falling, seems to lie in the demand preferences of changing population structures.

If CBDCs are issued, the demand for cash may continue to fall, but the demand for card usage may fall by even more.

The extent depends on the demand for CBDCs, and the incentives offered can play a determining role in their adoption and use. The key incentive being primarily transaction fees.

The paper starts with the usual list of cash being used as a medium of exchange, as a precautionary reserve and that cash is used to facilitate illegal activity. Their analysis of statistically relevant factors for what has been increasing levels of cash in circulation (CIC) include increases in household consumption, both cash and cards, falling interest rates and several indicators that point to tax evasion. A study of the data using different economic activities and interest rates showed that these were insignificant, but that age was actually significant.