Currency division systems, technological change and the cost of cash.

Summary Empirical studies on the social cost of payments agree that cash is the most costly payment instrument for society. Central and commercial banks have implemented various strategies to reduce both the holding and use of cash in payments. These include a category of so-called non-price strategies such as improving the currency division system (CDS) and changing the technology for making cash. However, the actual effectiveness of these strategies is subject to debate. This thesis contributes to this field of study through the determination of optimal currency divisions and the cost-effectiveness of MDS. It provides a better understanding of the implications of both payment behavior, manufacturing technology, and MDS structure on the distribution of cash transactions in the economy and the social cost of cash. First, we relax some restrictive assumptions in comparing the efficiency of MDS based on an empirical distribution of cash transactions in France. Second, we question a widely held view that efficient MDSs reduce the social cost of payments and also establish that payment solutions that are efficient in terms of the least effort principle may be more costly for the central bank. We propose a novel framework for measuring the benefit of adopting a new cash technology and, finally, we compare the social cost of two SDMs by simulating a mature version of the search models.