Digital money is growing more popular and physical money is not being used as much as it once was. But what happens if we have a cashless society and what would it mean? The purpose of this essay is to investigate if increased technological innovation lead to a decrease in the currency in circulation and if there is a short or long term effect of innovation on currency in circulation. To answer the questions a fixed effects regression model is applied, based on panel data for 4 countries Sweden, Norway, Denmark and Finland for the time period 2007-2020. The regression's findings provide credibility to the hypothesis that increasing innovation has had a negative effect on currency in circulations. With the help of a Vector Error Correction Model with time series data for Sweden from 2007 to 2020, the second part of the question is answered. The result find evidence that increased innovation has a long-run decreasing effect on currency in circulation.

The present study aims to deliberate over a wider perspective on the topic of physical currency, assuming the global conversion to digital payment instruments affecting stakeholders at different scales alters number of aspects. The theoretical section discusses the process of transition to cashless society by identifying transformation stages and the barriers faced to undertake the shift. Subsequently, the links between factors as business environment, globalization, and shadow economy in relation to physical currency in circulation are examined by static and dynamic panel data analyses applying annual panel data for 70 countries for the period from 2013 to 2017. The conclusive inference is formulated based on outputs from the Blundell-Bond (1998) system GMM estimator. The empirical results provide significant evidence on negative relationship between business environment and physical currency in circulation and contrary positive link for shadow economy. Further, the greater impact of business environment on physical money among variables included, implies the promotion of electronic money solutions solely to be not sufficient to transit to cashless economy. We also construct transformation score ranking for the last five years to snap the transit stage among countries included in the study with...