Anytime an individual makes a cash payment, s/he needs to think about the amount to be paid, the coins and notes which are available, and the amount of change. For central banks and retail stores, for example, it is of interest to un- derstand how this individual choice process works. The literature of currency use concerns primarily theory, in the sense that, given certain assumptions, one can de- rive an optimal denomination range. There is no empirical study which deals with the actual use of coins and notes, given a specific denomination range. In this paper we therefore present such a study, which is based on two rather unique data sets. We use descriptive statistics and a sophisticated model, which is designed for this specific purpose, to see whether two basic premises of the theories on optimal ranges are valid. In contrast to the widely accepted assumptions, we find that individuals appear not to pay efficiently and that they are also not indifferent to the use of coins and notes. In other words, some notes and coins are used less often than expected given the payment situation.

Additional Metadata
Keywords banking, cash payment
JEL Financial Institutions and Services: General (jel G20)
Persistent URL hdl.handle.net/1765/6801
Series Tinbergen Institute Discussion Paper Series
Citation
Kippers, J, van Nierop, J.E.M, Paap, R, & Franses, Ph.H.B.F. (2002). An Empirical Study of Cash Payments (No. TI 02-075/4). Tinbergen Institute Discussion Paper Series. Retrieved from http://hdl.handle.net/1765/6801