News in Brief

Cash Demand Hard to Categorise

A new paper has looked at the cash in circulation in 17 economies between 2001 and 2022 ¹. It looks at cash as a percentage of gross domestic product and finds that it has not been falling as might be expected. It finds that interest rates affect the demand for cash significantly and negatively, while tax revenues have a significantly positive impact. The reasons for the former are in line with the literature on interest rates and risk premiums.

Some measures of financial development are also considered but are found to not have any strong explanatory power. Country fixed effects regression analysis suggests that determining what type of economies may have higher or lower currency in circulation is a complex matter requiring more detailed investigation.