26 There are at least three advantages to the use of cash. First, currency and coin represent final payment and thus are more readily accepted than many non-cash instruments which do not have this attribute. Non-cash instruments are provisional because they may not be paid when presented (due to insufficient funds in a payor's account for a check, refusal to pay a bill of exchange,<sup>or default by the</sup> maker of a promissory note). Thus the creditworthyness of the payor needs to be determined when payment is offered using a non-cash instrument while this credit risk does not exist with cash. Second, cash can be immediately reused while collection of non-cash instruments is often<sup>delayed when drawn</sup> on non-local payor institutions. Third, cash is divisible and can be used to complete<sup>other transactions</sup> of differing amounts while checks or bills of exchange (when signed over to another receiver)<sup>are only</sup> poorly adapted for transactions of a differing amount.

Under certain circumstances, the use of cash can be a disadvantage.<sup>First, cash is a</sup> disadvantage when the amount needed for a payment is very large. Second, cash is not a convenient payment instrument when payment is required at a substantial distance from the payor, which<sup>could</sup> be across town or in a different city rather than nearby. Third, and perhaps most important, holding a large idle balance for cash payments can, in countries wVtp1 a relatively high crime rate, increase the risk of loss and/or personal safety to unacceptable levels. Finally, when interest rates<sup>are high, the</sup> opportunity cost of cash compared to deposit money is high in terms of interest foregone on idle cash holdings.

Considering these advantages and disadvantages, cash payments would be preferred over noncash instruments for e5sentially local transactions where the values involved are not overly large and the crime rate is low. Indeed, if there was little risk of theft or loss, there would be little need to use non-cash instruments at the point-of-sale because the disadvantages of cash use-large values, distance, and loss-would be minimal while the advantages-payment finality, timeliness, and divisibility-would dominate. Conversely, when the disadvantages to cash use loom large, non-cash instruments will be favored. In Japan, this occurs today for bill payments (inconvenient distance) as well as business disbursements and financial payments (large values and inconvenient distance). In other countries, particularly the U.S., a higher crime rte is an incentive to replace all but the lowest value cash transactions with non-cash instruments.

_Three stages in the evolution of Japanese payments._ The evolution of the Japanese payment system has undergone at leas **t** hree major events. First, with the Meiji Restoration in 1868, there was a strong, coordinated effort by business and governmen **t** o establish a more modern banking system.

_In addition, cash does not leave a paper trail, making it more difficult to keep_ accurate, _verifiable records. Although this is a cost for some, particularly for legal business transactions, itis a benefit for others who_<sup>_wish_</sup> _privacy. While the use of cash has an opportunity cost which is typically a function of the interest rate, this cost needs to be compared with the prices of non-cash instruments faced by users to determine what the relative price incentives may be regarding payment instrument use._

**_32_** _Japan is a relatively safe country and this permits cash to be heavily used in transactions at the point of sale (Federation of Bankers Associations of Japan, 1 994a, p.95 and 1994b, p. 1)._

**_33_** _Statistical analysis indicates that a higher incidence of violent crime is positively and significantly associated with the increased use of non-cash payment instruments across the 14 developed countries covered in this paper (Humphrey, Pulley, and Vesala, 1996)._