Debit cards have surpassed credit cards to become the most common form of Visa point-of-sale (“POS”) transaction in the United States (Visa 2002). Overall, debit was used for over 15.5 billion POS transactions totaling $700 billion in the year 2002 (CPSS 2003). This represented about 35% of electronic payment transaction volume and 12% of POS noncash payments (Gerdes and Walton 2002). Debit’s ascension has been sudden, with 47% of households using it by 2001, up from 18% in 1995 (Table 1). Industry observers predict continued strong growth for debit, while forecasting relatively weak growth in credit card charge volume.
Despite debit’s growth and prominence, the determinants of debit use have largely escaped academic scrutiny. The introductory quotes belie that fact that there are actually potentially important, pecuniary cost-based reasons for using debit. Principally, the 53% of credit card users who revolve balances incur interest costs to charge purchases on the margin (i.e., they don’t get the float), and hence might rationally choose to use debit rather than credit in order to minimize transaction costs.This motive holds even for the “small” (Laibson et al. 2003) fraction of consumers who simultaneously hold nontrivial stocks of low-yielding liquid assets and expensive credit card debt. Debit use might also be rational for consumers lacking access to a credit card or facing a binding credit limit.
According to the de facto classification in IMF (2003) the share of countries with pegged exchange rates decreased from about 80 to about 60 percent between 1990 and 1998. What explains exits from a fixed to a flexible exchange rate regime? The literature explains this in two ways:
The first explanation involves what is called "first generation" and "second generation" models of currency crises. In the "first generation" model by Krugman (1979) it is fundamentals themselves that bring about the breakdown of the fixed exchange rate regime. The breakdown is inevitable since an exogenous government deficit is financed by borrowing from the central bank. Since the nominal exchange rate is fixed and purchasing power parity holds, the depreciation pressure on domestic currency is offset by the central bank buying domestic currency with international reserves. With limited reserves, there will come a time when speculators realize that the fixed exchange rate regime cannot be sustained and the currency inevitably depreciates. This model of currency crises appeared to be appropriate for the Latin-American countries experiencing sharp currency depreciations following a fixed exchange rate regime in the 1970’s and 1980’s.
An intended purpose of financial accounting information is to reduce information asymmetry by allowing external providers of capital to better assess the firm’s investment opportunities and monitor managerial actions (e.g., Fama and Jensen 1983; Diamond and Verrecchia 1991; Bushman and Smith 2001; Healy and Palepu 2001; Beatty, Liao, and Weber 2008). In other words, financial accounting transparency should ease financing constraints by reducing the adverse selection or moral hazard costs associated with information asymmetry. However, in certain settings, financial accounting may serve a limited role in reducing information costs.
