On the socially optimal density of coin and banknote series: Do production costs really matter? |
| |
| Institution: | 1. Research Department, Bank Al-Maghrib, 277 Avenue Mohammed V, B-445 Rabat, Morocco;2. Department of Applied Economics (APEC), Vrije Universiteit Brussel, Pleinlaan 2, B-1050 Brussels, Belgium;1. Freddie Mac, 1551 Park Run Dr., McLean, VA 22102, USA;2. Department of Economics, National Taiwan University, No. 1, Sec. 4, Roosevelt Rd., Daan Dist., Taipei City 106, Taiwan;1. Dipartimento di Economia, Metodi Quantitativi e Strategie d’Impresa, Università di Milano Bicocca, Piazza dell’Ateneo Nuovo 1, Milano, Italy;2. Dipartimento di Scienze Economiche e Aziendali, Università degli Studi di Pavia, Via San Felice 5, 27100 Pavia, Italy |
| |
| Abstract: | By adding denominations to their coin and banknote series central banks can increase the efficiency of cash payments. In practice, however, they opt for a denominational structure with a relatively low density. The literature holds that this is because of the production costs involved. To test this proposition, we introduce a per-denomination fixed cost into the matching model of Lee et al. (2005) and parameterize the model with data on the production of US dollar banknotes. Our simulations demonstrate that central banks could increase the density of their currency systems beyond the observed level without the efficiency gains for transactors being dwarfed by the additional production costs for the central bank itself. This suggests that the explanation for the low density rather lies with costs incurred by consumers and merchants - and anticipated by central banks - that are not yet in any of the extant models. |
| |
| Keywords: | |
| 本文献已被 ScienceDirect 等数据库收录！ |
|
