Size matters in Canada – denominations are function specific

Banknote denominations affect people’s demand for physical cash. A study by the Bank of Canada has highlighted a trend in deposit behaviour between interest rates and deposit behaviour.

The working paper looked at the probability that as interest rates increase, users are more likely to deposit high value notes C$1000 (US$783) and less likely to deposit smaller denominations such as C$50 or C$100. Conversely, when interest rates decrease, demand for high denomination bills decrease and greater volumes of low denomination bills are deposited.

Whilst this might sound somewhat obvious, it does provide useful data regarding the circulation of different denominations and how interest rates affect demand.

The working paper can be found here.