DP13448 Canadian Legalization of Cannabis reduces both its cash usage and 'Black' Economy

Author(s): Jonathan Ashworth, Charles A Goodhart
Publication Date: January 2019
Keyword(s): Black Economy, Canada, Cannabis, cash
JEL(s): D12, E41, K40
Programme Areas: Monetary Economics and Fluctuations
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=13448

The Canadian Government legalized Cannabis usage on October 17th, 2018. During the same month, primarily in the week before and after such legalization, the amount of cash in circulation fell quite materially, in contrast to the rises typically observed in previous years. A key driver is likely to have been Cannabis users switching from cash payments for illegal purchases to using standard recordable electronic payments for their purchases, which have now become legal. The legalization of Cannabis should ultimately reduce the size of the Underground economy by around 4 or 5 percent, with a much bigger decline likely in the black economy.