How Currency Denomination and the ATM Affect the Way We Pay
Working Paper 2019-02a
February 2019 (revised August 2019)
This article identifies transaction values beyond which consumers switch from paying cash to paying with cards. In particular, the sharpest changes in the share of cash payments occur at $20 and $40, which coincide with the observation that most ATMs in the United States dispense multiples of $20 bills. The analytical part proposes algebraic formulations of consumer preferences that support this type of behavior. Whereas causality cannot be established, this research shows that currency and ATM bill denominations influence consumers’ choice of which payment instrument to use for in-person purchases.
JEL classification: D9, E42
Key words: currency denomination, automated teller machines, ATM, consumer payment choice, payment methods, in-person purchases