Whither Loose Change? The Diminishing Demand for Small‐Denomination Currency

While payment card usage has increased dramatically, the stock of outstanding currency has not declined as rapidly. We analyze changes in cash demand for 13 advanced economies from 1988 to 2003 by separating cash into three denomination categories to disentangle its store of wealth and payment functions. Defining denominations commonly dispensed by automated teller machines (ATMs) as the “medium” category, we show that demand for small‐denomination currency decreases with greater debit card usage and with greater retail market consolidation. In contrast, the demand for high‐denomination notes decreases when interest rates rise but is generally unaffected by changes in debit card usage.