Do Digital Payments 'Miss' Low Denomination Notes in the Philippines?

The Bangko Sentral ng Pilipinas (BSP) has published a discussion paper exploring the relationship between digital payments and demand for cash using data from the Philippines from late 2019 to 2024. Given that BSP is actively promoting the adoption of digital payments, this is an interesting and timely paper.

A perhaps unexpected finding was that while the relationship between digital payments and high denomination cash demand was negative, there either wasn't one or it was even positive for the small denominations.

Why good cash supply matters

Poor forecasting and supply of cash can lead to adverse concerns to the public and to financial system agents, creating a reputational risk to the central bank. Currency shortages can also impose constraints on the real economy that may cause contraction. The substitution of physical cash with e-money as the primary payment method may undermine the central bank's provision of risk-free assets and safe payment system to the public. Finally, the way consumers and merchants react to payment innovations affects how payment platforms should be properly regulated.