How Currency Denomination and the ATM Affect the Way We Pay

Oz Shy
Working Paper 2019-02a
February 2019 (revised August 2019)

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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

The author thanks seminar participants at the Federal Reserve of Atlanta for valuable comments on earlier drafts. The views expressed here are those of the author and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the author’s responsibility.
Please address questions regarding content to Oz Shy, Research Department, Federal Reserve Bank of Atlanta, 1000 Peachtree Street NE, Atlanta, GA 30309-4470,
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