Working Paper: CEPR ID: DP17313
Authors: Toni Ahnert; Peter Hoffmann; Cyril Monnet
Abstract: We propose a model of financial intermediation, payments choice, and privacy in the digital economy. While digital payments enable merchants to sell goods online, they reveal information to their lender. Cash guarantees anonymity, but limits distribution to less efficient offline venues. In equilibrium, merchants trade off the efficiency gains from online distribution (with digital payments) and the informational rents from staying anonymous (with cash). Privacy-preserving digital payments raise welfare by reducing privacy concerns, but only arrangements that enable data-sharing through consent functionalities guarantee that the social optimum is attained.
Keywords: Central Bank Digital Currency; Payments; Privacy; Financial Intermediation
JEL Codes: D82; E42; E58; G21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| CBDC (E42) | increased welfare (I38) |
| CBDC (E42) | reduced privacy concerns (L96) |
| CBDC (E42) | online distribution efficiency (L81) |
| CBDC (E42) | capture informational rents (D89) |
| CBDC (E42) | continuation financing for high-type sellers (G32) |
| payment methods (E42) | sellers' choices (D44) |
| payment methods (E42) | welfare outcomes (I38) |
| tokens issued by digital platforms (E42) | crowd out CBDC (E42) |
| CBDC includes data-sharing functionalities (E50) | impacts welfare outcomes (I30) |