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In a competitive sales environment, merchants are compelled to offer consumers the option of paying for goods and services using a variety of payment methods, including cash, debit card, or credit card. Each method entails different costs and benefits to merchants. To better understand the costs of accepting retail payments, the Bank of Canada surveyed over 500 Canadian merchants and found that most consider cash the least costly. This article investigated this perception by calculating the variable costs per transaction of accepting different means of payment. The findings are that costs for each payment method vary by merchant and transaction value, with debit cards the least costly payment for a broad cross-section of merchants.

We present a two-stage model of mobile phone and mobile payment usage that controls for selectivity. This reveals unobserved factors that work against having a mobile phone and toward mobile paying. Therefore, people who are unable to acquire or choose not to own a mobile device might have unmet payment needs.

We study consumer cash inventory behavior by developing a dynamic model of forward-looking consumers and estimating structural parameters of the model using detailed consumer survey data. Consumers facing holding and withdrawal costs solve a discrete-time continuous-control dynamic programming problem to optimally use cash at the point of sale.

Recent data show that the use of credit cards in Canada has been increasing, while the use of cash has been declining. At the same time, only two-thirds of small or medium-sized businesses accept credit cards.

We show that issuing a deposit-like central bank digital currency (CBDC) with a proper interest rate would encourage banks to pay higher interest to keep their customers. Banks would then attract more deposits and offer more loans. Hence, a CBDC would not necessarily crowd out private banking.

We examine how consumers have adjusted their payment habits during the COVID-19 pandemic. They seem to perform fewer transactions, spend more in each transaction, use less cash at the point of sale and withdraw cash from ATMs linked to their financial institution more often than from other ATMs.

Production efficiency and financial stability do not necessarily go hand in hand. With heterogeneity in banks’ abilities to screen borrowers, the market for loans becomes segmented and a self-competition mechanism arises. When heterogeneity increases, the intensive and extensive margins have opposite effects.

In 2006, the Bank initiated a research program exploring two alternatives to the current inflation-targeting framework: (i) lowering the inflation target and (ii) shifting to a price-level target. This article discusses progress to date, places the Bank's findings in the context of a broader literature, and identifies avenues for future research.

We estimate the effect that owning Bitcoin has on the amount of cash held by Canadian consumers. Our results question the view that adopting certain new technologies, such as Bitcoin, leads to a decline in cash holdings.

We simulate introducing a central bank digital currency (CBDC) and consider consumer adoption, merchant acceptance and usage at the point of sale. Modest adoption frictions significantly inhibit CBDC market penetration along all three dimensions. Incumbent responses to restore pre-CBDC market shares are moderate to small and further reduce the impact of a CBDC.