Shoe-Leather Cost Explained
January 20, 2018
Quick Definition: A shoe-leather cost describes the cost to individuals who have to take frequent visits to the bank to take out more money for goods and services in periods of high inflation. The name ‘shoe-leather cost’ comes from the fact that walking to the bank more regularly will wear down your shoes.
Also known as:
Shoe-leather costs of inflation
What is a shoe-leather cost?
A shoe-leather cost is one of the impacts of inflation.
In a period of high inflation people are discouraged to hold large amounts of cash because its value deteriorates quickly relative to the rising prices in the economy.
As a result, people tend to hold most of their money in a bank account and keep only very small amounts of cash with them. This causes them to make regular trips to their bank to withdraw cash to pay for goods and services. These regular trips wear out their shoe-leather, thus creating a ‘shoe-leather cost’.
The shoe-leather cost is now used more generally to describe all the costs associated with having to hold small amounts of cash.
- Bank – This is an institution that accepts deposits and uses this money to make loans to people and businesses. The bank will reward depositors with interest and charge interest on any loans made.
- Inflation – When the general level of prices of goods and services in an economy is increasing.
- Inflation rate – This measures the percentage change in the general level of prices from the year before.
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