A shoe-leather cost refers to cost individuals incur from frequent visits to bank to withdraw money for purchasing goods and services in the wake of high inflationary pressure. The name ‘shoe-leather cost’ metaphorically refers to all costs- transportation cost, brokerage fee, bank charges, time spent etc.
In a period of high inflation (hyperinflation) the value of money plummets fast, therefore, the individual is discouraged to hold large amounts of cash. They keep more money in banks. Further, frequent rises in the price level, force individuals to withdraw money frequently to meet transaction purposes. 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’.
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