SMU SOE Seminar Series (August 26, 2026): Breaking Up With M: Cashless Limits Under Limited Commitment

TOPIC:

ABSTRACT

We examine the welfare implications of eliminating cash in nearly cashless economies. Our model features money and credit coexisting under limited commitment. The analysis yields four key insights. First, banks’ market power is neither necessary nor sufficient for cash elimination to affect aggregate welfare, but it is sufficient to generate distributional effects. Second, the welfare consequences depend on the source of bank market power, bargaining strength versus information. Third, removing cash generates positive welfare gains if limited commitment is mitigated through public record-keeping. Finally, cash elimination can create financial exclusion even when all agents are initially banked.

Keywords: Money, Limited Commitment, Cashless Limit.

JEL: E40, E50.

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