The Demand for Cash in Korea
Author: Byoung Hark Yoo(Institute for Monetary & Economic Research, Bank of Korea)
This paper examines the present payment usage situation in Korea, and
empirically analyzes the effects of the expansion in non-cash payment means
such as credit cards on the demand for cash, using the Whitesell (1989)
Model that simultaneously considers both cash and demand deposits as
methods of payment.
The ratio of cash to consumption has decreased recently to its lowest level
since 1970, a fact seemingly attributable to the decline in use of cash in
accordance with expanded credit card usage, as the benefits obtained from
use of credit cards have grown due to the government's credit card use
If there had not been a system for deducting credit card payment amounts
from taxable income, it is estimated that the ratio of cash to consumption
would have returned to its level prior to the currency crisis. Considering this
result, the recent decline in demand for cash seems to be attributable to the
artificial policy of the government, rather than to technological development
in payment methods.
Meanwhile, it is judged that there is a limit to forecasting the demand for
100,000-won notes by examining the trend of use of 100,000-won cashier's
checks, which are used like cash in Korea. Keeping this limit in mind,
estimation of the demand for 100,000-won cashier's checks indicates that
their use has declined as electronic payments have increased due to the
recent development of technology such as internet banking.