nep-pay New Economics Papers
on Payment Systems and Financial Technology
Issue of 2021‒03‒08
seventeen papers chosen by
Bernardo Bátiz-Lazo
Northumbria University

  1. How to issue a central bank digital currency By David Chaum; Christian Grothoff; Thomas Moser
  2. Cash and COVID-19: The Effects of Lifting Containment Measures on Cash Demand and Use By Heng Chen; Walter Engert; Kim Huynh; Gradon Nicholls; Julia Zhu
  3. CRIX an Index for cryptocurrencies By Trimborn, Simon; Härdle, Wolfgang Karl
  4. An introduction to the current debate on central bank digital currency (CBDC) By Juan Ayuso Huertas; Carlos Antonio Conesa Lareo
  5. Consumer Payment Choice and the Heterogeneous Impact of India’s Demonetization By Ayushi Bajaj; Nikhil Damodaran
  6. Understanding the digital security of products: An in-depth analysis By OECD
  7. Learning from unincentivized and incentivized communication: A randomized controlled trial in India By Alem, Yonas; Dugoua, Eugenie
  8. Bitcoin: An Inflation Hedge but Not a Safe Haven By Sangyup Choi; Junhyeok Shin
  9. Free competition in the post-pandemic digital era: The impact on SMEs By Da Silva, Filipe; Núñez Reyes, Georgina
  10. Data-Driven Mergers and Personalization By Zhijun Chen; pch346; Chongwoo Choe; Jiajia Cong; Noriaki Matsushima
  11. Time Series Decomposition for Anomalous E-commerce Transactions By Anton Gerunov; Ilia Atanasov; George Mengov
  12. Enhancing the digital security of products: A policy discussion By OECD
  13. Breaking Through the Digital Ceiling: ICT Skills and Labour Market Opportunities By David Pichler; Robert Stehrer
  14. Using IBM Food Trust Blockchain in the Food Supply Chain: A Research on Walmart By Toptancı, Ali İskan
  15. A Social Norm Nudge to Save More: A Field Experiment at a Retail Bank By Robert Dur; Dimitry Fleming; Marten van Garderen; Max van Lent
  16. On the Internet you can be anyone: An experiment on strategic avatar choice in online marketplaces By Abraham Diya; Ben Greiner; Marianne Stephanides
  17. 'Soft-wars': The Differential Trajectories of Google and Microsoft - A Capital as Power Analysis By Mouré, Christopher

  1. By: David Chaum; Christian Grothoff; Thomas Moser
    Abstract: With the emergence of Bitcoin and recently proposed stablecoins from BigTechs, such as Diem (formerly Libra), central banks face growing competition from private actors offering their own digital alternative to physical cash. We do not address the normative question whether a central bank should issue a central bank digital currency (CBDC) or not. Instead, we contribute to the current research debate by showing how a central bank could do so, if desired. We propose a token-based system without distributed ledger technology and show how earlier-deployed, software-only electronic cash can be improved upon to preserve transaction privacy, meet regulatory requirements in a compelling way, and offer a level of quantum-resistant protection against systemic privacy risk. Neither monetary policy nor financial stability would be materially affected because a CBDC with this design would replicate physical cash rather than bank deposits.
    Keywords: Digital currencies, central bank, CBDC, blind signatures, stablecoins
    JEL: E42 E51 E52 E58 G2
    Date: 2021
  2. By: Heng Chen; Walter Engert; Kim Huynh; Gradon Nicholls; Julia Zhu
    Abstract: We conduct a follow-up to Chen et al. (2020) and study demand for and use of cash after the containment measures imposed at the beginning of the COVID-19 pandemic were relaxed during the summer of 2020. We find that bank notes in circulation continued to rise in July due to ongoing cash withdrawals and decreased cash deposits in the Bank Note Distribution System. The probability of consumers using cash for payments increased in July compared with April 2020. As well, consumer cash holdings, measured as the median value of cash on hand, returned to August 2019 levels.
    Keywords: Bank notes; Central bank research; Coronavirus disease (COVID-19); Digital currencies and fintech; Econometric and statistical methods
    JEL: C12 C9 E4 O5 O54
  3. By: Trimborn, Simon; Härdle, Wolfgang Karl
    Abstract: The cryptocurrency market is unique on many levels: Very volatile, frequently changing market structure, emerging and vanishing of cryptocurrencies on a daily level. Following its development became a difficult task with the success of cryptocurrencies (CCs) other than Bitcoin. For fiat currency markets, the IMF offers the index SDR and, prior to the EUR, the ECU existed, which was an index representing the development of European currencies. Index providers decide on a fixed number of index constituents which will represent the market segment. It is a challenge to fix a number and develop rules for the constituents in view of the market changes. In the frequently changing CC market, this challenge is even more severe. A method relying on the AIC is proposed to quickly react to market changes and therefore enable us to create an index, referred to as CRIX, for the cryptocurrency market. CRIX is chosen by model selection such that it represents the market well to enable each interested party studying economic questions in this market and to invest into the market. The diversified nature of the CC market makes the inclusion of altcoins in the index product critical to improve tracking performance. We have shown that assigning optimal weights to altcoins helps to reduce the tracking errors of a CC portfolio, despite the fact that their market cap is much smaller relative to Bitcoin. The codes used here are available via
    Keywords: Index construction,Model selection,Bitcoin,Cryptocurrency,CRIX,Altcoin
    JEL: C51 C52 G10
    Date: 2020
  4. By: Juan Ayuso Huertas (Banco de España); Carlos Antonio Conesa Lareo (Banco de España)
    Abstract: This paper provides an overview of the concept of central bank digital currency (CBDC) that may serve as a basis for an ordered discussion and an in-depth analysis of the different relevant aspects in the ongoing debate about this digital financial asset. The primary objective is to review the grounds that could warrant issuing CBDC and undertake a preliminary analysis of its main implications, especially those linked to the CBDC models that seem most likely to be adopted, judging by the motivations of the central banks whose issuance plans are currently most advanced.
    Keywords: central bank digital currency, stablecoins, cryptocurrencies, cryptoassets
    JEL: E42 E52 E58
    Date: 2020–03
  5. By: Ayushi Bajaj; Nikhil Damodaran
    Abstract: Consumer payment choice is based on heterogeneous preferences, availability, usage costs, and effective taxes. We examine the consequences of this choice on consump-tion distribution, aggregate output, welfare and the shadow economy. We employ this framework to analyze India’s unexpected demonetization of 86% of its currency in circulation. We find that this shock to liquidity led to an immediate and temporary fall in aggregate output and welfare. Further, it led to disparate distributional effects as not all consumers could switch to non-cash payments. Using consumption distribu-tion data, we find the lower and middle deciles in rural areas were disproportionately affected.
    JEL: D83 E41 E52 E58 O17
    Date: 2020–12
  6. By: OECD
    Abstract: Economies and societies are increasingly reliant upon “smart products” that contain code and can connect to one another, e.g. through the Internet. Recent cyber-attacks such as Mirai, WannaCry, NotPetya and SolarWinds have underlined that the exploitation of vulnerabilities in smart products can have severe economic and social consequences. Such attacks increasingly threaten users’ safety and well-being, as well. This report shows that economic factors play an important role in the relative “insecurity” of smart products. It develops an analytical framework based on the value chain and lifecycle of smart products, and applies the framework to three case studies: computers and smartphones, consumer Internet of Things (IoT) devices and cloud services. It demonstrates that complex and opaque value chains lead to a misallocation of responsibility for digital security risk management, while significant information asymmetries and externalities often limit stakeholders’ ability to behave optimally.
    Date: 2021–02–09
  7. By: Alem, Yonas; Dugoua, Eugenie
    Abstract: Interactions among peers of the same social network play significant roles in facilitating the adoption and diffusion of modern technologies in poor communities. We conduct a large-scale randomized controlled trial in rural India to identify the impact of information from friends on willingness to pay (WTP) for high-quality and multi-purpose solar lanterns. We offered solar lanterns to seed households from 200 non-electrified villages and randomly assigned three of their friends to two communication treatments (unincentivized and incentivized) that led to different exposure to their seed friend. We also introduce a second treatment to investigate whether the seed's gender impacts the magnitude of peer effects. We show that unincentivized communication increases WTP for solar lanterns by 90% and incentivized communication by 145%, but gender doesn't seem to matter. We also show that learning from others is the mechanism that drives the increase in WTP. Our findings have significant implications for policies that aim at promoting the diffusion of new technologies in developing countries.
    Keywords: Technology adoption,peer effects,information flow,solar lantern
    JEL: O33 D83 Q21 Q42
    Date: 2021
  8. By: Sangyup Choi (Yonsei Univ); Junhyeok Shin (Yonsei Univ)
    Abstract: During the recent COVID-19 pandemic, many commonalities shared by Bitcoin and gold raise the question of whether Bitcoin can hedge inflation or provide a safe haven as gold often does. By estimating a Vector Autoregression (VAR) model, we provide systematic evidence on the relationship among inflation, uncertainty, and Bitcoin and gold prices. Bitcoin appreciates against inflation (or inflation expectation) shocks, confirming its inflation-hedging property claimed by investors. However, unlike gold, Bitcoin prices decline in response to financial uncertainty shocks, rejecting the safe-haven quality. Interestingly, Bitcoin prices do not decrease after policy uncertainty shocks, partly consistent with the notion of Bitcoin’s independence from government authorities. We also find an interesting asymmetry in the drivers of Bitcoin price dynamics between the bullish and bearish market. The main findings hold with or without the COVID-19 pandemic episode.
    Keywords: Cryptocurrencies; Bitcoin; inflation-hedging; safe-haven; gold; COVID-19
    JEL: E41 E44 F31 G10
    Date: 2021–03
  9. By: Da Silva, Filipe; Núñez Reyes, Georgina
    Abstract: This study was conducted in the framework of the United Nations Development Account project “Global Initiative towards Post-COVID-19 Resurgence of the Micro-, Small and Medium Enterprises (MSME) Sector” (under the “Access to markets” cluster), which aims to analyse the actions of competition authorities in Latin America and the Caribbean to support small and medium-sized enterprises (SMEs) during the coronavirus (COVID-19) pandemic and facilitate their recovery. This document analyses the role of competition policy in the digital economy, with an emphasis on the relation between business strategies, technological innovation and market concentration; as well as the suitability of the current legal and institutional frameworks for competition in Latin American countries for facing the current challenges. It also describes some of the practices used by large technology firms and the way these strategies condition market access for SMEs. It aims to demonstrate need for compatibility between industrial and competition policies and for greater coordination among the agencies responsible for data protection and competition policy and among the different government agencies.
    Date: 2021–02–22
  10. By: Zhijun Chen; pch346; Chongwoo Choe; Jiajia Cong; Noriaki Matsushima
    Abstract: Recent years have seen growing cases of data-driven tech mergers such as Google/Fitbit, in which a dominant digital platform acquires a relatively small firm possessing a large volume of consumer data. The digital platform can consolidate the consumer data with its existing data set from other services and use it for personalization in related markets. We develop a theoretical model to examine the impact of such mergers across the two markets that are related through a consumption synergy. The merger links the markets for data collection and data application, through which the digital platform can leverage its market power and hurt competitors in both markets. Personalization can lead to exploitation of some consumers in the market for data application. But insofar as competitors remain active, the merger increases total consumer surplus in both markets by intensifying competition. When the consumption synergy is large enough, the merger can result in monopolization of both markets, leading to further consumer harm when stand-alone competitors exit in the long run. Thus there is a tradeoff where potential dynamic costs can outweigh static benefits. We also discuss policy implications by considering various merger remedies.
    Keywords: big data, personalization, tech mergers
    JEL: D43 L13 L41 K21
    Date: 2020–12
  11. By: Anton Gerunov (Faculty of Economics and Business Administration, Sofia University St. Kliment Ohridski); Ilia Atanasov (Faculty of Economics and Business Administration, Sofia University St. Kliment Ohridski); George Mengov (Faculty of Economics and Business Administration, Sofia University St. Kliment Ohridski)
    Abstract: Online trading is one of the pillars of the digital economy. The rapid increase of e-commerce transactions has increased the risk exposure of providers and made it virtually impossible to track consumer behaviour by relying on human experts alone. Here we show how time series decomposition can be used to automatically detect suspicious transactions and flag the mout for subsequent actions. The identified outliers have clear business meaning and can be interpreted as peaks in demand produced by idiosyncratic consumer behaviour or by malicious activity. Either way, they deserve sufficient attention and active management.
    Keywords: Anomaly detection, time series decomposition, e-commerce, online trade.
    Date: 2020–12
  12. By: OECD
    Abstract: From “traditional” software to cloud services and Internet of Things (IoT) devices, our economies and societies are increasingly reliant upon “smart products” that contain code and can connect to each other, e.g. through the Internet. Such products are vulnerable to cyber security risk, and economic factors often play a major role in their relative ‘insecurity’. This report discusses how policy makers can address key challenges that prevent smart products from reaching an optimal level of digital security. Increasing transparency and information sharing, promoting co-operation (including at the international level), and ensuring the duty of care of supply-side actors (e.g. through the principles of security-by-design, security-by-default and responsible end-of-life) are important avenues for policy action. Policy makers can leverage many tools to achieve these objectives, from public procurement, certification and multi-stakeholder partnerships, to labels and ex ante legal requirements.
    Date: 2021–02–09
  13. By: David Pichler; Robert Stehrer (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: This paper analyses the impact of ICT-skills on individuals’ labour market mobility patterns, in particular job-to-job, employment- to-unemployment and unemployment-to-employment transitions. Based on the OECD’s Programme for the International Assessment of Adult Competencies (PIAAC) and longitudinal EU-SILC data, individuals’ labour market outcomes are examined over the period 2011-2017 in nine EU countries and the UK. Our results indicate that individuals with strong ICT skills have better opportunities and are therefore not only more likely to change jobs more frequently but are also less likely to face unemployment. Furthermore, ICT skills support unemployment exit towards medium and high digital occupations. A certain minimum level of ICT skills also supports unemployment exit towards low digital occupations but seems to make employment in such occupations less likely once this threshold is crossed. Overall, ICT skills have less predictive power for transition towards medium digital occupations. Thus, while ICT skills appear to improve labour market opportunities significantly, it seems that there are still jobs that require relatively few ICT skills.
    Keywords: digital skills, labour market transitions
    JEL: C25 J23
    Date: 2021–02
  14. By: Toptancı, Ali İskan
    Abstract: To combat food scandals around the world, Walmart, the retail giant, is trying to ensure food security in its supply chain using blockchain technology. In 2016, the Food Safety Cooperation Center was established in Walmart Beijing and plans to invest $ 25 million by 2021 to improve global food security. Leveraging IBM's Hyperledger Fabric-based blockchain solution, Walmart has successfully implemented two pilot blockchain projects: pork from China and mango from America. With an on-farm approach, Walmart's blockchain solution reduces the time to trace the origin of the mango from 7 days to 2.2 seconds. This has enabled Walmart to promote more transparency across the food supply chain. IBM defines this as "full end-to-end traceability. This research was conducted to provide opportunities to use blockchain solutions in the global food ecosystem to implement blockchain technology in the food supply chain, increase food security and reduce food waste.
    Keywords: Food Safety,Food Supply Chain,Walmart,IBM Food Trust
    Date: 2021
  15. By: Robert Dur; Dimitry Fleming; Marten van Garderen; Max van Lent
    Abstract: A large fraction of households have very little savings buffer and are therefore vulnerable to financial shocks. This paper examines whether a social norm nudge can induce such households to save more. We ran a large-scale field experiment at a retail bank in the Netherlands. We find that households who are exposed to the social norm nudge click more often on a link to a personal web page where they can start or adjust an automatic savings plan. However, analyzing detailed bank data, we find no treatment effect on actual savings, neither in the short run nor in the long run. Our null findings are quite precisely estimated. A complementary small-scale survey experiment suggests that people did notice the social norm nudge and also that it had an impact on savings intentions.
    Keywords: household savings, field experiment, nudges, social norms
    JEL: C93 D14 D90 E21 G40
    Date: 2021
  16. By: Abraham Diya (Wirtschaftsuniversität Wien, Institute for Markets and Strategy, Austria, Masaryk University, Brno, Czech Republic); Ben Greiner (Wirtschaftsuniversität Wien, Institute for Markets and Strategy, Austria, University of New South Wales, School of Economics); Marianne Stephanides (Wirtschaftsuniversität Wien, Institute for Markets and Strategy)
    Abstract: In order to decrease social distance and increase trust on their platforms, many online marketplaces allow traders to be represented by profile pictures or avatars. In a laboratory experiment, we investigate whether the presence of seller avatars affects trading behavior in a market. We contrast markets without avatars with markets where avatars truthfully represent traders and markets where avatars can be freely changed at any time and may thus be chosen strategically. At the aggregate level, we find that the presence of truthful avatars increases the trustwothiness of sellers, but that this effect is undone when avatars can be chosen strategically. We do not detect aggregate effects on buyers´trusting choices. Female avatars are more trusted, and correspondignly in the treatment with free avatar choice men are more likely to represent themselves with a female avatar then vice versa.
    Keywords: online marketplaces, market design, trust and trustworthiness, avatars, strategic behavior
    JEL: C72 C90 D91
    Date: 2021–02
  17. By: Mouré, Christopher
    Abstract: According to the capital as power framework, pecuniary earnings, or profits, are a symbolic representation of the struggle for power between different capitalist groups. In this struggle, capitalists measure their own power differentially - that is, relative to other capitalist entities. The focus on differential power, expressed in differential earnings, leads firms to try to beat an average rate of return. In order for the profits of one firm to beat the average, others must be prevented from accessing the same earnings. In an environment with hundreds, thousands or even millions of similar sized firms, it would be difficult if not impossible to empirically isolate the relationship between shifts in power between any two firms. However, in most industries, only a handful of firms dominate, theoretically making the microanalysis of such a relationship much more feasible. It is my contention that this is largely true for the computer technology industry in the US. Within the computer technology industry, Microsoft and Google stand out as two of the most profitable and most powerful firms. As such, it is logical to assume that in differential power terms, Google's rapid rise poses a direct threat to Microsoft's dominance. Moreover, in recent years both companies have expanded beyond their respective core profitable businesses, coming into more and more direct competition. [. . .] The purpose of this paper is to show that, despite the fact that Google and Microsoft currently derive the majority of their profits from separate businesses, competition between them can be empirically observed in the way each firm pursues the differential accumulation of power.
    Keywords: capital as power,differential accumulation,Google,Microsoft
    JEL: M1 G P16
    Date: 2021

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