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
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: Suggested Citation