How Currency Denomination and the ATM Affect the Way We Pay
Working Paper 2019-02b
February 2019 (revised August 2019 and March 2020)
I show how currency denomination and the ATM influence consumers' choice of whether to pay cash for in-person purchases. I identify transaction values above which consumers switch from paying cash to paying with cards. 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. Other thresholds prevail at multiples of $5 and $10. The above thresholds generate asymmetries in consumer behavior where the share of cash payments increases for payments values just below the thresholds and decreases just above them.
JEL classification: D9, E42
Key words: currency denomination, automated teller machines, ATM, cash payments, consumer payment choice, payment methods, in-person purchases