Precautionary cash holding by consumers making electronic payments and risk-taking behavior

Abstract

Research background: The relative inertia in holding cash, despite the increasing importance of electronic payments, is one of the most fascinating puzzles of the current monetary system and a significant issue for central bank policy. In our study, we would like to extend the previous considerations regarding holding cash by consumers who have decided to make electronic payments but keep the cash despite this. Purpose of the article: Recent literature mainly considers the trade-off between cash and electronic payments. We go beyond this dual framework and instead focus on the precautionary demand for cash. We study the relevance of several psychological factors behind cash holding by consumers who have decided to use electronic payments. Methods: We employ factor analysis and logistic regression. We use data from a standardized online survey conducted among Polish consumers. Findings & value added: Our study's key determinants of holding cash include risk-taking behavior, perceived risk of the unavailability of the payment infrastructure and perceived attitudes towards cash (flexibility and cybersecurity related to the lack of exposure to cyberattacks). According to our research, consumers attach great importance to the flexibility that cash gives as an additional option to electronic payments. A better understanding of these motivations is crucial for public policymakers, who should strive to design payment systems that respond to the needs of all social groups. Therefore, in (at least) the short and medium term, cash will remain in circulation, even if it gradually loses its payment function.