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FINANCIAL AND MONETARY POLICY STUDIES Volume 23

The titles published in this series are listed at the end of this volume.

CURRENCY USE AND PAYMENT PATTERNS

by WILLEM c. BOESCHOTEN De Nederlandsche Bank, Econometric Research and Special Studies Department

KLUWER ACADEMIC PUBLISHERS DORDRECHT / BOSTON / LONDON

Library of Congress Cataloging-in-Publication Data Boeschoten, W. C. Currency use and payment patterns! by Wi I lem C. Boeschoten. p. cm. -- (Financial and monetary policy studIes; v. 23) Includes bIblIographical references and index. ISBN 0-7923-1710-6 (alk. paoer) 1. Money. 2. Money--Netherlands. 3. Hoarding of money. 4. InternatIonal fInance. I. TItle. II. Series, Financial and monetary polICY st~dles ; 23. HG222.5.B64 1992 332.4--dc20 92-2206

ISBN 0-7923-1710-6

Published by Kluwer Academic Publishers, P.O. Box 17, 3300 AA Dordrecht, The Netherlands. Kluwer Academic Publishers incorporates the publishing programmes of D. Reidel, Martinus Nijhoff, Dr W. Junk and MTP Press. Sold and distributed in the U.S.A. and Canada by Kluwer Academic Publishers, 101 Philip Drive, Norwell, MA 02061, U.S.A. In all other countries, sold and distributed by Kluwer Academic Publishers Group, P.O. Box 322, 3300 AH Dordrecht, The Netherlands.

All Rights Reserved © 1992 Kluwer Academic Publishers No part of the material protected by this copyright notice may be reproduced or utilized in any form or by any means, electronic or mechanical, including photocopying, recording or by any information storage and retrieval system, without written permission from the copyright owner.

To Monique

CONTENTS

PREFACE INTRODUCTION

ix 1

1 THEORY AND EMPIRICAL EVIDENCE 1.1 Introduction 1.2 Macro-economic theory 1.3 Micro-economic theory 1.3.1 The transactions demand 1.3.2 The precautionary demand 1.3.3 The speculative demand 1.4 Empirical evidence from earlier studies 1.4.1 The demand for money (Ml) 1.4.2 The demand for currency 1.5 The demand for currency in the Netherlands 1955-1990 1.5.1 Empirical evidence from demand function 1.5.2 Empirical evidence from turnover figures 1.6 Conclusions

4 4 8 8 18 21 23 23 27 31 31 36 40

2 THE USE OF MONEY IN A MICRO-ECONOMIC PERSPECTIVE 2.1 Introduction 2.2 The cash management of households 2.2.1 General framework of analysis 2.2.2 Results of the survey in 1983 2.2.3 Design and results of the survey in 1990 2.2.4 A closer look at the survey resUlts 2.2.5 Expected changes in cash management 2.3 Manner of payment and use of currency 2.3.1 Payment patterns in 1984-1986 2.3.2 Payment patterns in 1990 and expected changes 2.4 Conclusions

42 43 43 45 50 61

67 69

70

87 96

3 THE HOARDING OF CURRENCY IN THE NETHERLANDS 3.1 Introduction 3.2 Hoarding in a economic-theoretical setting 3.3 Estimation of hoarding 3.3.1 Estimation from banknote figures 3.3.2 Empirical evidence from circUlation figures 3.4 Cross-sectional evidence on the Fl. 1,000 note 3.4.1 Methodology of the survey 3.4.2 The demand for Fl. 1,000 notes by sector 3.4.3 Results on the hoarding of the Fl. 1,000 note 3.5 Empirical implica