Date Added: Mar 2011
During the last decades, technological innovation has generated a major transformation in payment systems, stimulating a widespread use of different forms of electronic money and increasing substitutability between deposits and currency in transactions. A big advantage of deposits is that, unlike currency, they can pay nominal interest on the average balance at a very low cost. As a result, in most developed countries an increasing number of people chose debit cards to make transactions. Despite the huge impact that these cards have had on everyday life, little is known about their consequences for the optimal conduct of monetary policy.