Falling Use of Cash and Demand for Retail Central Bank Digital Currency

IMF Working Papers, February 4, 2022

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Cash use in most countries is falling slowly.
On the margin, younger adults favor cash substitutes over cash; for older adults it is the reverse.
Revealed preference tied to a changing population age structure appears to be the main influence on the demand for cash and why it is falling.
Cash use may continue to fall if retail central bank digital currency (CBDC) is issued.
Card use (the main cash substitute) may fall by more if CBDC is issued.
The extent of reductions in cash and card use depends on:
- the demand for retail CBDC, and
- the incentives (primarily transaction fees) that can play a determining role in CBDC adoption and use.

Demographic shifts (population age structure) are the primary driver identified for changing demand for cash.
Behavioral differences by age cohort (younger vs. older adults) shape substitution between cash and digital payment methods.
Introduction of a retail CBDC has the potential to reallocate payment activity away from both cash and cards, with the magnitude contingent on CBDC attractiveness and fee structures.
Transaction fees are highlighted as a central policy lever that affects CBDC adoption and the displacement of existing payment instruments.

Subjects: Central Bank digital currencies, Currencies, Digital currencies, Financial markets, Household consumption, Money, National accounts, Payment systems, Technology
Keywords: Africa, card payments, card substitution, Cash, cash share, cash substitute, cash use, Central Bank digital currencies, central bank digital currency, Currencies, Digital currencies, Household consumption, payment substitution, Payment systems, use of cash