Electronic Banking and Cash

Readers Question: electronic banking has caused the demand for cash — as a percentage of GDP– to decline’ . i have did a bit research on this and i found there is no abviouse impact on decline of cash but not too sure if it right. so would you please tell me more about the impact of having eletronic banking and demand for cash. thank you

I imagine it is hard to find reliable statistics about this.

You would expect an increase in electronic banking to reduce demand for cash. If people can pay with debit cards / credit cards, then there is less need to carry cash around. Faced with an unexpected large bill, people would use plastic rather than cash.

However, even though cash is used less often because of electronic developments, there are many other factors which might influence level of cash in the economy.

Economic growth / prosperity. WIth more growth, people may carry more cash for leaving more generous tips e.t.c

Growth in black market / carboot sales e.t.c

% of sales on internet. Internet sales will definitiely reduce cash demand.

To be honest, I can’t be of much help. But, growth in the money supply has often been erratic and difficult to predict.

E.g. when government pursued monetarism in the 1980s, the link between money supply and inflation was tenuous at best.