Tap-and-go cuts the cash people need to hold

Step by step

1. 1

   Part of money demand is transactions demand: cash held simply to buy things.

2. 2

   Instant digital payments mean people can move money the moment they need it.

3. 3

   Transactions demand falls, so the money demand curve shifts left.

4. 4

   Against a fixed money supply, the equilibriumequilibriumThe point where opposing forces balance, quantity supplied equals quantity demanded, so there's no pressure for price to change. interest rate falls. Payment technology is a monetary force, not just a convenience.

Where this shows up

Examiners ask this as: digital payments, money demand falls, cashless, transaction demand, tap and go.