Banknote Printing in a Less-Cash Society: Innovate or Not?

Journal of Financial Market Infrastructures, Vol. 4, Nr. 1, September 2015, p. 1-23.

Posted: 28 Sep 2015

See all articles by Leo Van Hove

Leo Van Hove

Vrije Universiteit Brussel (VUB)

Date Written: September 27, 2015

Abstract

This paper models the banknote printing costs of a central bank in a society that uses progressively less cash. In such a setting, the central bank runs the risk of overinvesting when it introduces a new technology – for example when it switches from paper to polymer notes. I show that simple durability/cost rules-of-thumb are unhelpful in determining the viability of polymer and that the strength of the fall in currency demand matters, albeit not in a monotonous way. A key factor is how the fall in demand compares to the note replacement rate. Simulations for three Nordic countries illustrate the findings.

Keywords: Banknotes, Currency, Central banks, Printing costs, Polymer, Less-cash society

JEL Classification: L69, O33, E42

Suggested Citation

Van Hove, Leo, Banknote Printing in a Less-Cash Society: Innovate or Not? (September 27, 2015). Journal of Financial Market Infrastructures, Vol. 4, Nr. 1, September 2015, p. 1-23., Available at SSRN: https://ssrn.com/abstract=2666259

Leo Van Hove (Contact Author)

Vrije Universiteit Brussel (VUB) ( email )

Department of Applied Economics (APEC)
Pleinlaan 5
Brussels, B-1050
Belgium
+32 2 614 84 49 (Phone)

HOME PAGE: http://research.vub.ac.be/applied-economics/members

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