With the increase in electronic payments, it has been difficult to determine how personal preferences impact the demand for cash as a payment instrument. By analyzing data on demographics and stated payment preferences, this FedNotes paper provides evidence on the determinants of cash usage for small value payments, and particularly how consumers’ stated payment instrument preference and the amount of the purchase affect their propensity to use cash.
It’s commonplace these days to predict the demise of cash. However, evidence from the Diary of Consumer Payment Choice (DCPC) suggests that consumers choose to use cash more frequently than any other payment instrument, including debit or credit cards. Cash plays a dominant role for small-value transactions, is the leading payment instrument for many types of purchases, and stands as the key alternative when other options are not available. Using the DCPC data, this FedNotes paper explores where, how, and why people use the various payment options and highlights the key and enduring roles cash continues to play in consumer transactions.
Until recently, cash handling has been largely a manual and labor-intensive process. However, this has begun to change with new devices that automate certain back office cash handling functions, such as cash dispensers, recyclers, and smart-safes. Because cash usage remains strong, merchants, banks, and armored carriers are exploring ways to take advantage of these new technologies to automate their cash handling functions. This FedNotes paper provides an overview of cash handling in the financial and merchant environments, along with how these new devices are being used.
The role of paper currency in the U.S. economy is changing. While the share of payments made with cash appears to be falling, cash continues to be used widely and plays an important function as a store of value, domestically and internationally. Cash also serves an enduring role in natural or other disasters when other payment systems may not be available. These factors suggest that cash will continue to be an essential and significant part of the payment and financial system for the foreseeable future.