credit card

International Research Journal of Finance and Economics ISSN 1450-2887 Issue 36 (2010) © EuroJournals Publishing, Inc. 2010 http://www.eurojournals.com/finance.htm

Do Credit and Debit Cards Induce an Evaporation of

Cash in Mauritius?

Indranarain Ramlall1 University of Technology, Mauritius

E-mail: [email protected]

Abstract

The effects of credit and debit cards on currency in circulation are analysed for Mauritius, an upper-income developing country for the period 1999-2008. The analysis is undertaken on an aggregate basis along with specificity of currency, i.e. notes being assessed separately from coins. Results show that the number of both credit and debit cards do not affect currency in circulation. However, the use of a second model with a different proxy reveals that debit cards usage acts as complements rather than substitutes to notes in circulation. Consistent with empirical evidence in other countries, GDP is found to entail the highest economic effect on currency in circulation, irrespective of the model employed. Keywords: Credit cards, Debit cards; Currency demand; Mauritius. JELClassification Codes: E41

1. Introduction Transactions effected via cards are becoming increasingly popular nowadays at the expense of notes and coins. This signifies that a substitution effect is manifesting whereby both credit cards and debit cards are expected to reduce currency in demand. The rationale for clinging towards cards is that they promote an efficient payment mechanism, let alone the element of security. Consequently, a rising literature has been noted in case of assessing the effect of debit and credit cards on currency demand. However, the literature has mainly tilted towards developed countries with few works have been undertaken in case of developing countries. Nevertheless, many studies have found that the use of cards is symptomatic to lower level of currency in circulation. Recently, Yazgan and Yilmazkuday (2007) find that an increase in the usage of credit and debit cards generates a fall in the currency demand in Turkey and hence possible reduction in seignorage income. Consequently, the analysis is also endorsed from perspective of the Bank of Mauritius in safeguarding the level of seignorage income.

This paper analyses the use of alternative payment media in Mauritius, an upper-income developing country, with their effects on the financial system. At this stage, it is of paramount significance to bear in mind two inherent aspects of such a study. First, it is expected that rising use of cards, whether debit or credit, will be symptomatic to lower use of currency in circulation. Secondly, should this hold, then, this has vital repercussions on government’s revenues via seigniorage. Basically, seigniorage pertains to the government’s ability in raising revenue via its right to create money. Now, since the inflation tax revenue is a product of the inflation rate and the real money base; a rise in cards usage will thwart on growth in the real money base so that this channels into a lower

1 The views expressed in this paper are solely those of the author and do not necessarily reflect those of the University of

Technology, Mauritius.

International Research Journal of Finance and Economics - Issue 36 (2010) 17

inflation tax revenue. For instance, Stix (2004) points out that the loss of seigniorage income may be substantial following negative effect of credit and debit cards on currency in demand.

The usual starting line for such study is based on the monetary exchange equation whereby the product of equilibrium amount of money and velocity should be equal to the product of price level and transactions. In that respect, under the assumption that velocity and transactions are constant, any change in money will automatically translate into a change in the price level. Now, since currency in circulation represents money, it is expected that, in the long-run, the driving force for change in it will be inflation. Hence, a priori, it is anticipated that the effect of debit and credit cards can be modeled in form of a VECM. However, estimating the money demand function is not an easy task as deeper investigation revealed that inflation and currency in circulation were not cointegrated. Subsequently, recourse is made towards Ordinary Least Squares2 with variables in incorporated in their first difference mode post conversion into log to gauge on the effect of debit and credit cards on notes and coins.

In this paper, I attempt to answer the question of whether debit and credit cards have unleashed a negative effect of currency in circulation in Mauritius. The contribution of this paper is that, unlike, previous studies, whereby notes and coins have been considered in aggregate, the current study analyses them separately. Such decomposition is underscored, chiefly for non-developed countries. Another contribution of this paper is that two different proxies are used. First, the number of cards is employed in line with Rinaldi (2001). Second, the value of transaction per number of cards is used. Results obtained are sensitive to the proxies used.

The rest of the paper is organized as follows: Section 2 deals with the literature review. Section 3 provides information on debit and credit cards in Mauritius. Section 4 spells out the econometric model used to sieve out the effects of debit and credit cards on currency demand. Section 5 shows the results obtained while section 6 concludes. 2. Literature Review While credit cards fulfill the functions of medium of borrowing and alternate transaction medium, debit cards fulfill the functions as medium of liquidity and alternate transaction medium. In that respect, credit and debit cards share alternate transaction medium as a common function. However, both require ATMs along with firms that accept credit and debit cards as forms of payments. Hence, any study gauging on substitution effect of noncash payments should ensure that the country under consideration has a well developed banking system with a satisfactory network coverage.

The notion that credit card constitutes an alternate transaction medium was first pointed out by Akhand and Milbourne (1986). They find that credit cards enable agents to maintain lesser money balances and more bonds. In a parallel manner, Duca Whitesell (1995) study the effect of credit cards on money demand for US households to find that credit card ownership entails a negative effect on checking and money balances. In the same vein, Blanchflower et al. (1998) find that credit cards pave the way towards a fall in households’ transactions and precautionary demand for money.

Yazgan and Yilmazkuday (2007) focus their analysis on Turkey, a small open economy. They find that both credit and debit cards unleash a negative effect on demand for money. Rinaldi (2001) considers the impact of credit and debit cards, POS and ATMs on currency in circulation in Belgium to end up with a negative effect of POS terminals and ATMs while cards are associated with a weak effect. Focusing on the Austrian cash demand, Stix (2004) find that cash demand is significantly affected by debit card usage.

Attanasio et al. (1998) estimates the demand for money in Italy between 1989 and 1995 using both firms and households data. They find that the demand for money of households who hold an ATM card is much more elastic to interest rate relative to households who do not hold an ATM card. This has implications for inflation in that the welfare loss of inflation is greater for households in possession

2 The use of VAR model was found to generate similar results as per OLS.

18 International Research Journal of Finance and Economics - Issue 36 (2010)

of a more sophisticated transaction technology as the latter scales up the interest rate sensitivity of the demand for money. The negative effect of cards on currency in demand is usually explained by the level of transaction value.

As a matter of fact, De Grauve et al. (2000) find that the average cost of card payment revolves around 1.3 percent of the transaction value while it hovers around 9 percent of the transaction value when cash is used.

The empirical literature is also filled with studies conducted not only for specific countries but also for a specific group of countries. For instance, Snellman et al. (2001) find robust evidence of a substitution effect between cash, cards, ATMs and POS terminals in case of European countries. Drifting towards OECD countries, Drehmann et al. (2002) find that the number of POS terminals and ATMs have considerable impacts on cash. 3. Debit and Credit cards usage in Mauritius The use of cards in Mauritius is inevitably linked to the level of economic growth accomplished. However, it is vital to note that credit cards are usually associated with company schemes and is as such not use as widespread as debit cards. Besides, the selective process in granting of credit cards by banks, high interest rates, security reasons and preference of Mauritians for debit cards to withdraw notes rather than direct payments, all point out the overriding use of debit cards in Mauritius. Indeed, the ratio of number of debit cards to credit cards has hovered around 4.00 over these ten years with a sustained upward trend noted for the last three years. This clearly shows that debit cards substantially predominate over credit cards in Mauritius. In fact, debit cards represent the most popular cashless instrument for local transactions. The current study is important for Mauritius which already has a well developed banking sector and a satisfactory number of ATMs throughout the whole island.

Source: Bank of Mauritius Monthly Statistical Bulletins, Various Issues

For the period under analysis, the number of ATMs has almost doubled, being 196 in June 1999 to end up at 382 in June 2008. In that respect, it is expected that this will occasion a fall in currency in demand. Indeed, Markose and Loke (2003) find that the extent of credit and debit cards on cash demand can be magnified in case there is an improvement in the network coverage of these cards. Hence, it is believed that the number of ATMs constitutes the best proxy to encapsulate such network coverage.

While the number of transactions has scaled up by 186%, the value of transactions has increased by 243% for the same period under analysis. Relatively speaking, the increase in debit cards has been higher (153%) compared to that of credit cards (79%). Such a difference simply reflects the fact that Mauritians prefer debit cards to credit cards and the latter are usually offered to good quality customers. Moreover, in Mauritius, it can be easily conjectured that credit cards are principally for payments while debit cards for withdrawals of notes instead as a direct model for pauments. It is


important to note that savings in costs underlie the rationale behind the use of debit cards and the mushrooming of ATMs throughout Mauritius. Cheques payments are usually labour-intensive and costly to the effect that local banks. As far as security element is concerned, people tend to use debit cards mainly for cash withdrawals rather than direct mode of payment.

The ratio of the value of notes to coins hovers around 27.07 over the period, showing, as in other countries, that notes constitute the lion’s share of currency in circulation. This basically reflects the fact that coins are mainly meant for low transaction value.

Mauritius tilts more towards the European case whereby debit cards are by far more diffused and used relative to credit cards while in US, credit cards predominate. 4. Econometric Models (a). First model

To test the degree to which other modes of payments have replaced the demand for currency in circulation, the following currency demand equation is employed, spanning over a period of almost ten years, from June 1999 to June 2008. All variables used are in log form.

ΔNCt = λ0 + λ1ΔDebitt + λ2ΔCreditt + λ3ΔATMst+ λ4ΔCPIt+ λ5ΔIRt+ λ6ΔGDPt+ λ7ΔNCt–1 + εt (1)

ΔNt = λ0 + λ1ΔDebitt + λ2ΔCreditt + λ3ΔATMst+ λ4ΔCPIt+ λ5ΔIRt+ λ6ΔGDPt+ λ7ΔNt–1 + εt (2) ΔCt = λ0 + λ1ΔDebitt + λ2ΔCreditt + λ3ΔATMst+ λ4ΔCPIt+ λ5ΔIRt+ λ6ΔGDPt+ λ7ΔCt–1 + εt (3) Where NC: Notes and Coins Debit: Number of Debit cards Credit: Number of Credit cards ATMs: Number of ATMs CPI: Consumer Price Index IR: Interest rate GDP: Gross Domestic Product C: Coins N: Notes The econometric model used is more or less similar to that of Rinaldi (2001). However, lagged

values of the dependent variables have been accommodated to account for any rectification effects on the back of some “overshooting” or “undershooting” effects. Besides, the model has been decomposed into coins and notes. Alternatively stated, this paper deviates from previous empirical methodology by considering notes and coins together and also in isolation. The rationale is that, for a developing country, the impact of debit and credit cards can be different hinging on the type of currency in circulation. Except for GDP and CPI, all data were gleaned from Bank of Mauritius Monthly Statistical Bulletins which freely available on its website.

Gross Domestic Product (GDP) is expected to entail a positive impact on currency demand. The rationale is that a country subject to consistent growth will inevitably need monetary growth along the same line to sustain its activities level. Based on the fact that GDP data was available only on a quarterly basis from the Mauritian Central Statistics Office, Mauritius, linear interpolation has been used to convert the quarterly data into monthly data.

Interest rate is anticipated to generate a negative impact on currency demand. A rise in interest rate engenders a higher opportunity cost of holding money to the plain effect that, people will tend to reduce their holdings of currency in favour of more lucrative assets. The interest rate variable was built used evolution of both the Lombard Rate and the Key Repo Rate (the new interest rate benchmark that has replaced the Lombard Rate).


Inflation as captured by Consumer Price Index (CPI), is expected to trigger a positive effect on currency demand by virtue of inflationary adjustments coupled with transaction purposes. The CPI data was adjusted to a new base as at June 1999.

ATMs reflect the number of cash dispensing ATMs. The effect of ATM on currency demand can be either positive or negative. A positive impact occurs in case there is an increased ease of effecting cash withdrawals. Conversely, a negative effect manifests as ATMs lower transaction costs to consumers.

Finally, as argued by Yazgan and Yilmazkuday (2007), the constant reflects the level of technological improvements. In that dimension, it is expected to have a negative sign because an improved technology enables the use of other modes of payments other than currency balances.

Lagged values of the dependent variables were incorporated to cater for any “overshooting” or “undershooting” effects.

The correlation coefficients for all the variables are shown in the appendix. (b). Second Model

ΔNCt = λ0 + λ1ΔDebitUsaget + λ2ΔCPIt+ λ3ΔIRt+ λ4ΔGDPt+ λ5ΔNCt–1 + εt (4) ΔNt = λ0 + λ1ΔDebitUsaget + λ2ΔCPIt+ λ3ΔIRt+ λ4ΔGDPt+ λ5ΔNCt–1 + εt (5) ΔCt = λ0 + λ1ΔDebitUsaget + λ2ΔCPIt+ λ3ΔIRt+ λ4ΔGDPt+ λ5ΔNCt–1 + εt (6) It can be argued that the first model is deficient in its proxies meant to capture credit and debit

card usage since the value of transaction has been overlooked. In that respect, a second model was run with the use of healthier proxy subject to availability of data. Due to unavailability of data pertaining specifically to the transaction value related to credit cards and debit cards, respectively, the following proxy (denotedDebitUsage) was considered to best capture the element of debit card usage. Since the total value of transactions related to credit cards, debit cards, ATMs and Merchant Point of Sale was available, debit card usage was computed using the latter figure divided by total number of debit cards. Indeed, based on the fact that debit cards outnumber credit cards and ATMs both in terms of number and value of transactions, this proxy is expected to be effective. Above all, as per the Mauritian culture, many people shun to use credit cards not only because banks are selective in their approach but also that they do not want to pay unnecessary interests. Consequently, this signifies that the lion’s share of total value of transactions will be explained by debit cards. 5. Empirical Results Table A: Using Number of Credit, Debit cards and ATMs as independent variables

Dependent variables Notes & Coins Notes Coins

-4.26E-05 -0.0001 0.0005 Constant (-0.0112) (-0.0419) (1.1201) -0.0409 -0.0422 -0.0374 D(DEBIT)

(-0.1358) (-0.1356) (-0.9224) 0.0956 0.0981 0.0023 D(CREDIT)

(0.4196) (0.4173) (0.0754) -0.0336 -0.0391 0.1163 D(ATMS)

(-0.0623) (-0.0702) (1.6068) -0.3432 -0.3436 -0.2150 D(CPI)

(-0.3256) (-0.3160) (-1.5256) 0.0062 0.0063 0.0011 D(INT)

(0.4711) (0.4624) (0.6344) 1.5323 1.5827 0.1852 D(GDP)

(6.6822)*** (6.6900)*** (6.1440)*** D(NOTE & COINS(-1)) -0.3569


(-4.3693)*** -0.3599 D(NOTE(-1)) (-4.4105)*** 0.6451 D(COINS(-1)) (9.9503)***

Adjusted R-squared 0.3353 0.3364 0.5656 Durbin-Watson 2.3685 2.3716 2.0721 F-statistic 8.6403 8.6769 20.7175 Prob(F-statistic) 0.0000 0.0000 0.0000

*** denotes statistical significance at the 1% level.

The correlation coefficient tables show that multicollinearity is not an issue of concern. Each of the residuals of the regressions was tested and all were found to be stationary. Debit cards are associated with the expected negative sign while credit cards entail a positive sign, though the coefficients are not statistically significant. Hence, results show that there is no substitution effect between cash and cards. Impotency of credit cards, debit cards and ATMs simply reflect the fact that notes and coins still constitute the most preferred form of instrument for transactions. Alternatively stated, though, there has been a rise in the number of both debit cards, credit cards and ATMs over the period 1999-2008, yet, this has not led towards a fall in currency balances, showing the extent to which Mauritians still prefer to maintain currency balances for their transactions.

As far as GDP is concerned, it is found to generate a positive impact on currency balances. More specifically, its impact is greatest in case of notes relative to coins. Indeed, a 1% increase in notes triggers a 1.58% rise in notes but merely a 18% increase in coins. This bodes well with the fact that as the economy is subject to greater growth, higher-value transactions are made so that higher denominator currencies are needed and thereby more notes are used relative to coins. Such a finding is similar to that of Snellman et al. (2001) who also found that the greatest determinant of currency holdings is GDP in Europe. The different magnitude effects on notes and coins separately stresses the need for specificity of analysis.

The negative impact of ATMs implies that they provide a substitute cash provision method as is the case for notes and coins together and only notes but not for coins only. Such a finding adds luster to the fact that decomposition of currency circulation into notes and coins is important to gain full insight of the effect of alternative methods of payments. However, the results are statistically insignificant, again supporting the fact that Mauritians cling to currency balances for their transactions. Interestingly, ATMs unleashes a positive effect on coins at the 11% significance level. This simply reflects that fact that since ATMs don’t provide coins, the rising use of ATMs has led towards a rising demand for coins to settle low-value transactions.

Technically speaking, it is expected that inflation will trigger a positive impact while interest rates a negative effect. However, the reverse manifests, though none are statistically significant. Hence, it can be conjectured that a rise in interest rate, synonymous with higher opportunity cost in terms of forgone earnings related to holdings of alternative assets other than money, does not really affect currency balances in Mauritius. Such a result befits the Mauritian context since it has usually been found that there is no major effect of monetary policy decisions on stocks listed on the Stock Exchange of Mauritius. The negative effect of inflation appears disturbing since a rise in the price level will stimulate people to add on additional cash balances to restore their purchasing power. The effect impact could well signify that higher inflation is associated with vehement issues of Treasury Bills, Bonds and Notes to effectively mop up excess currency in circulation. Or, this could simply reflect the embedded Mauritian culture whereby, irrespective of the evolution of the interest rate and the inflation rate, people adhere to the same level of currency for their transactions.

As far as the correction variables are concerned, it generates a positive value in case of notes and a negative value for coins. This again shows the need for specificity of analysis. Subsequently, this depicts some “overshooting” effects in case of notes and some “undershooting” effects in case of coins.


Table B: Using a proxy for debit card usage as independent variable Dependent variables Notes & Coins Notes Coins

0.0022 0.0022 0.0006 Constant (0.9616) (0.9177) (1.4003) 0.3056 0.3152 0.0168 D(DebitUsage)

(11.7217)*** (11.7131)*** (3.5554)*** 0.0007 0.0007 0.0005 D(INT)

(0.0904) (0.0800) (0.3062) 0.6088 0.6287 0.1567 D(GDP)

(3.7188)*** (3.7195)*** (5.2156)*** -0.5005 -0.5066 -0.1469 D(CPI)

(-0.7649) (-0.7502) (-1.1395) -0.0836 D(NOTE & COINS(-1))

(-1.4525) -0.0865 D(NOTE(-1)) (-1.5024) 0.6613 D(COINS(-1)) (10.7412)***

Adjusted R-squared 0.7234 0.7236 0.6076 Durbin-Watson 2.5512 2.5539 2.0955 F-statistic 56.4600 56.5202 33.8364 Prob(F-statistic) 0.0000 0.0000 0.0000

*** denotes statistical significance at the 1% level.

At first sight, it becomes obvious that the use of debit card usage is better since it leads to substantial rise in the explanatory power of the model. Interestingly, the adjusted R2 is higher is much higher in case of notes relative to coins, further pointing out the need for decomposing currency in circulation.

Consistent with previous empirical results, neither inflation nor interest rates impact on notes or coins. Such impotency of both the interest rate and the CPI, even after factoring the value of transactions depicts the extent to which cultural factors are embedded in the Mauritian economy. Indeed, the majority of people are conservative as far as finance is concerned. They simply prefer savings in banks and are not watchful of the changes in interest rates as to switch to the local stock market.

Besides, GDP is again found to generate the highest level of economic significance on notes with a 1% rise in GDP trailing behind a 0.63% rise in notes. Relatively speaking, the effect on notes is of a lower magnitude, merely of 0.16%. This goes well with the fact that GDP will affect notes more than coins since higher value-transactions require higher denominator currency such as notes. The low effect noted in the second model relative to the first model shows the extent to which the use of number of cards as proxy is misleading since they do not capture the essence related to value of transactions.

Interestingly, the proxy used to depict debit card usage generates a positive effect irrespective of the dependent variable under consideration, though the impact is of a greater magnitude in case of notes. Based on the fact that debit cards outnumber credit cards, it can be conjectured that rising debit cards has unleashed a positive impact on notes with a 1% increase in transaction value posting a 0.31% rise in notes. Such a result bodes well with the fact that rising number of debit cards have generated enhanced access to notes so that this has been synonymous with a catalyst for notes in circulation. Hence, far from the results obtained by Snellman et al. (2001) and Yazgan and Yilmazkuday (2007), in case of Mauritius, it transpires that debit cards override the electronic payments systems and that they have incited the use of notes in circulation. In a nutshell, debit card usage constitutes a complement to the use of notes in Mauritius as people withdraw notes for meeting their daily or weekly needs.

Finally, only some “undershooting” effects are noted in case of coins.


6. Conclusion This paper analyses the use of alternative forms of payment relative to notes and coins in Mauritius, an upper-income developing country. Such an analysis is warranted to find any substitution process for Mauritius. The analysis differs from previous research as it caters for specificity of currency component. Such decomposition is considered important bearing in mind feasible interactions between notes and coins, analogous to capital structure analysis where short term debt are usually separated from long term debt. Another contribution of this study is that it advocates the use of value of transactions rather than number of cards.

Using similar proxies as per Rinaldi (2001), the results in the first model show that the use of electronic forms of payments such as the number of debit cards, credit cards and the number of ATMs have not affected the flow of currency in Mauritius. However, being dubious about such a result and based on data availability, the value of transactions was used to depict debit card usage. Indeed, the number of cards does not matter, what matters is the value of transactions conducted by these cards. Hence, this study advocates the use of a cleaner proxy for debit cards to gauge its impact on currency in circulation. The newly used proxy for debit cards usage appears to be robust since both the adjusted R2 and the F-statistics are all higher.

Interestingly, it transpired that the latter variable induces a positive effect on both notes and coins, with the impact being both economically and statistically higher in case of notes relative to coins. Such a finding corroborates the need for specificity of analysis when assessing the effect of alternative modes of payments on currency balances. This further shows that though there has been consistent rise in the number of both debit cards, yet, cash still permeates the payments atmosphere. In that respect, debit cards have acted as complements in inducing a higher level of notes in circulation. Indeed, with ATMs provided in almost every corner of the country, easy access to notes has been promoted. Consequently, electronic means of payments, guided principally by debit cards, are acting as complements rather than substitutes in Mauritius. The rationale for the positive effect is that, with easy access to ATMs at any point in time, people withdraw just enough cash they need for their daily or weekly transactions so that they do not keep superfluous amount of notes in their purses or wallets. The study also found that neither interest rate nor inflation affect currency in circulation.

Irrespective of the model used, it surfaced that GDP constituted the predominant variable in affecting currency in circulation. Such a finding bodes well with prior empirical evidence such as the case of Snellman et al. (2001) who also found that the greatest determinant of currency holdings is GDP in Europe. In that respect, should the financial crisis gnaw at the GDP of Mauritius, a fall in currency in circulation is inevitably expected to manifest.

The positive effect of debit card usage sounds of good omen to the government in case of any inflation tax revenue since the monetary base has not been thwarted but rather stimulated via the use of debit cards. Hence, it can be pointed out that debit cards are indirectly inflating the purse of the government. Hence, this research finds evidence contrary to the study of Yazgan and Yilmazkuday (2007) who find that debit cards reduces seigniorage income in Turkey.

However, this study is not without any deficiencies. It has not be able to directly sieve out the effect separately of credit cards usage and debit cards usage since transaction values were present only in aggregate form. Despite this limitation, yet, the proxy used to depict debit card usage is deemed wholesome since during the whole period under analysis, there has been four debit cards for every credit card held. Above all, credit cards are offered only to certain category of clients by banks. Besides, Mauritians are usually reluctant to use credit cards since they don’t want to pay high interest rates, let alone the element of security. All these reasons point out that debit cards rejoice over a stronger position than credit cards and such a situation is expected to persist for a longer time period. On that basis, the debit card usage proxy is considered healthy and valid.


References [1] Akhand, H., and Milbourne, R. (1986), “Credit Cards and Aggregate Money Demand”, Journal

of Macroeconomics, 8(4): 471-478. [2] Attanasio, O., Jappelli, T., and Guiso, L., (2002), “The Demand for Money, Financial

Innovation, and the Welfare Cost of Inflation: An Analysis with Household Data”, Journal of Political Economy, 110(2), 317-351.

[3] Bank of Mauritius Monthly Statistical Bulletins from June 1998 to June 2008. [4] Blanchflower D.G., Evans, D.S. and A.J. Oswald, (1998), “Credit cards and Consumers”,

NERA Working Papers, December. [5] De Grauwe, P., Buyst, E. and Rinaldi, L., (2000), “The Costs of Cash and Cards Compared:

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Usage: Will the Traditional Transaction Medium Be Able to Resist Competition Form the New Technologies?”, Economic Policy, 34: 195-227.

[7] Duca, JV., and Whitesell, WC., (1995), “Credit Cards and Money Demand: A Cross-sectional Study”, Journal of Money, Credit and Banking, 27(2): 604-623.

[8] Markose, S. and Loke, Y.J., (2003), “The Microstructure of Recent Trends in Cashlessness: U.K. and U.S.A. Compared”, mimeo.

[9] Rinaldi, L., (2001), “Payment Cards and Money Demand in Belgium”, CES Discussion Paper DPS 01.16, KU Leuven.

[10] Snellman, J., Vesala, J. and Humphrey, D., (2001), “Substitution of Noncash Payment Instruments for Cash in Europe”, Journal of Financial Services Research, 19: 131-145

[11] Stix, H., (2004), “How Do Debit Cards Affect Cash Demand? Survey Data Evidence”, Empirica, 31: 93-115.

[12] Yazgan, M.E. and Yilmazkuday, H., (2007), “Monetary Policy Rules in Practice: Evidence from Turkey and Israel”, Applied Financial Economics, 17(1): 1-8.

Appendix Correlation Coefficients for the variables

Δ(ATMS) Δ(COINS) Δ(CPI) Δ(CREDIT) Δ(DEBIT) Δ(ATMS) 1.000000 0.195987 0.203618 0.129447 0.159487 Δ(COINS) 0.195987 1.000000 -0.041964 0.028151 -0.068222 Δ(CPI) 0.203618 -0.041964 1.000000 -0.150331 0.135252 Δ(CREDIT) 0.129447 0.028151 -0.150331 1.000000 0.155911 Δ(DEBIT) 0.159487 -0.068222 0.135252 0.155911 1.000000 Δ(GDP) 0.209931 0.410020 -0.114056 0.183068 0.061399 Δ(INT) -0.037776 0.096964 0.123113 0.000749 0.061169 Δ(NOT_COI) 0.081250 0.505946 -0.135146 0.152536 -0.044696 Δ(NOTE) 0.080527 0.501810 -0.134639 0.152719 -0.044216

Δ(GDP) Δ(INT) Δ(NOT_COI) Δ(NOTE) Δ(DebitUsage) Δ(ATMS) 0.209931 -0.037776 0.081250 0.080527 0.516796 Δ(COINS) 0.410020 0.096964 0.505946 0.501810 0.550384 Δ(CPI) -0.114056 0.123113 -0.135146 -0.134639 0.505919 Δ(CREDIT) 0.183068 0.000749 0.152536 0.152719 0.494566 Δ(DEBIT) 0.061399 0.061169 -0.044696 -0.044216 0.509769 Δ(GDP) 1.000000 0.095105 0.496506 0.495452 0.588899 Δ(INT) 0.095105 1.000000 0.072949 0.072366 -0.021575 Δ(NOT_COI) 0.496506 0.072949 1.000000 0.999982 0.679028 Δ(NOTE) 0.495452 0.072366 0.999982 1.000000 0.681077 Δ(DebitUsage) 0.391100 0.069202 0.812941 0.813081 1.000000

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