The theory and measurement of cash payments: a case study of the Netherlands

One of the more intractable problems in the area of monetary economics is the measurement of cash payments. In recent years, interest in cash payments has been revived as a direct result of their alleged role in lubricating the ‘underground’ economy. Because cash payments rarely leave a ‘paper’ trail, they are an effective medium of exchange for those seeking to avoid the payment of income or consumption taxes. But the importance of cash payments goes well beyond the issue of the underground economy. Indeed, the appropriate measurement of cash payments, and more particularly, the turnover or velocity of cash, is essential for the coherent development of monetary theory, and for measuring the effects of monetary changes on all macroeconomic activity.