The Demand for Euro Area Currencies: Past, Present and Future

Fischer, Björn; Koehler, Petra; Seitz, Franz

doi:10.2139/ssrn.526993

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The Demand for Euro Area Currencies: Past, Present and Future

ECB Working Paper No. 330

102 Pages Posted: 23 Jun 2004

See all articles by Björn Fischer

Franz Seitz

Technical University of Applied Sciences Weiden

Date Written: April 2004

Abstract

This paper analyses currency in circulation in the euro area since the beginning of the 1980s. After a literature review we present some stylised facts on currency holdings in the euro area countries as well as at an aggregate euro area level. The next chapter develops a theoretical model, which broadens traditional money demand models to incorporate arguments for the informal economy and foreign demand for specific currencies. When estimating the demand for euro legacy currencies, we find significant differences between the determinants of holdings of small and large denominations as well as overall currency demand. While small-value banknotes are mainly driven by domestic transactions, large-value banknotes seem to be used as a store of value both domestically and abroad. Finally, a number of estimation methods result in rather low levels of transaction balances at around 25% to 35% of total currency.

Keywords: currency in circulation, cointegration, purposes of holding currency

JEL Classification: E41, E52, E58

Suggested Citation: Suggested Citation

Fischer, Björn and Koehler, Petra and Seitz, Franz, The Demand for Euro Area Currencies: Past, Present and Future (April 2004). ECB Working Paper No. 330, Available at SSRN: https://ssrn.com/abstract=526993 or http://dx.doi.org/10.2139/ssrn.526993