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


  • We thank Santiago Carbó Valverde, David Humphrey, Deborah Lucas (the editor), Mitchell Petersen, Richard Porter, and two anonymous referees for comments and suggestions. Erin Davis, Tiffany Gates, Victor Lubasi, Tim McHugh, Sue Parren, and Stan Rabinovich provided excellent research assistance. The views expressed are those of the authors and do not represent those of the Federal Reserve Bank of Chicago or the Federal Reserve System.


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.