nep-pay New Economics Papers
on Payment Systems and Financial Technology
Issue of 2021‒12‒20
nineteen papers chosen by

  1. Can central bank digital currency increase financial inclusion? Arguments for and against By Ozili, Peterson K
  2. Price Stability of Cryptocurrencies as a Medium of Exchange By Tatsuru Kikuchi; Toranosuke Onishi; Kenichi Ueda
  3. Stay Competitive in the Digital Age: The Future of Banks By Miss Estelle X Liu
  4. Toward Cleaner Production: Can Mobile Phone Technology Help Reduce Inorganic Fertilizer Application? Evidence Using a National Level Dataset By Khan, Nawab; Ray, Ram; Kassem, Hazem; Ihtisham, Muhammad; Abdullah, .; Asongu, Simplice; Ansah, Stephen; Zhang, Shemei
  5. The Tension Between Market Shares and Profit Under Platform Competition By Paul Belleflamme; Martin Peitz; Eric Toulemonde
  6. The draft digital markets act: a legal and institutional analysis By Ibáñez Colomo, Pablo
  7. Optimal bidding strategies for digital advertising By M\'ed\'eric Motte; Huy\^en Pham
  8. Privacy Paradox – Economic Uncertainty Theory and Legal Consequences By Sarah Geschonke; Thomas Wein
  9. Central Bank Digital Currencies and The Emerging Markets: The Currency Substitution Challenge By Sebastian Edwards
  10. Investing in a cryptocurrency price bubble: speculative Ponzi schemes and cyclic stochastic price pumps By Misha Perepelitsa
  11. Developments in Banknotes in Circulation since the Start of the Pandemic By Kento Yoshizawa; Kohei Maehashi; Hiroaki Yanagihara; Yoichi Kadogawa; Masakazu Inada
  12. CBDC as Imperfect Substitute for Bank Deposits: A Macroeconomic Perspective By Philippe Bacchetta; Elena Perazzi
  13. Blockchain and Real Estate : The Smart Lease By Valentin Blanc; Erika Dewald; Marc Durand; Benjamin Fragny; Youness Garah; Lolita Gillet; Benoît Lopez; Isabelle Maleyre; Fernanda Sabrinni-Chatelard; Baptiste Saint-Martin; Eric Seulliet; Michaël Sigda; Jérôme Tixier; Inès Trojette; Yannick Vincent; Cathy Zadra-Veil; Zadra-Veil Cathy
  14. Competition and regulation in the Finnish ATM industry By Markkula, Tuomas; Takalo, Tuomas
  15. Some issues related to the Japanese financial system raised by the amendment of Payment Act in 2020 By Katsutoshi Takehana; Hisashi Tanizaki
  16. Some Alternative Monetary Facts By Mr. Manmohan Singh; Mr. Peter Stella
  17. Cash demand in times of crises By Rösl, Gerhard; Seitz, Franz
  18. A Factor Model for Cryptocurrency Returns By Daniele Bianchi; Mykola Babiak
  19. Blockchain for participative, transparent, traceable, efficient and sustainable food supply chains: BBSC By Florent Saucède

  1. By: Ozili, Peterson K
    Abstract: This paper presents the arguments for and against central bank digital currency increasing financial inclusion. Financial inclusion is arguably one of the many reasons for issuing a central bank digital currency. The arguments in support of CBDC increasing financial inclusion are that CBDC can digitize value chains, CBDCs can improve access to digital financial services, CBDC can help to enlarge the digital economy, CBDC can enhance the efficiency of digital payments, CBDC can be used offline when there is no internet coverage, and CBDC offer low transaction costs. The arguments against CBDC increasing financial inclusion are that CBDC may not prioritize financial inclusion, the high cost to purchase digital devices for holding a CBDC, non-interest bearing CBDC, the strong preference for cash over digital currency, the burdensome identification and regulatory requirements, and the imposition of transaction costs. The arguments presented in this paper shows that there is still disagreement over whether a central bank digital currency can increase financial inclusion. Nevertheless, in the light of recent events, many central banks are determined to issue a central bank digital currency for many reasons. Even though a central bank digital currency does not achieve the intended financial inclusion objective, at least, the other objectives for issuing a central bank digital currency can be achieved such as the reduction in cash management costs and the effective conduct of monetary policy.
    Keywords: financial inclusion, central bank digital currency, CBDC, debate, arguments, digital currency, monetary policy, cash.
    JEL: E42 E50 E51 E52 E58 E59 G2 G21 I31 I38 I39
    Date: 2022
  2. By: Tatsuru Kikuchi; Toranosuke Onishi; Kenichi Ueda
    Abstract: We present positive evidence of price stability of cryptocurrencies as a medium of exchange. For the sample years from 2016 to 2020, the prices of major cryptocurrencies are found to be stable, relative to major financial assets. Specifically, after filtering out the less-than-one-month cycles, we investigate the daily returns in US dollars of the major cryptocurrencies (i.e., Bitcoin, Ethereum, and Ripple) as well as their comparators (i.e., major legal tenders, the Euro and Japanese yen, and the major stock indexes, S&P 500 and MSCI World Index). We examine the stability of the filtered daily returns using three different measures. First, the Pearson correlations increased in later years in our sample. Second, based on the dynamic time-warping method that allows lags and leads in relations, the similarities in the daily returns of cryptocurrencies with their comparators have been present even since 2016. Third, we check whether the cumulative sum of errors to predict cryptocurrency prices, assuming stable relations with comparators' daily returns, does not exceeds the bounds implied by the Black-Scholes model. This test, in other words, does not reject the efficient market hypothesis.
    Date: 2021–11
  3. By: Miss Estelle X Liu
    Abstract: The latest advancement in financial technology has posed unprecedented challenges for incumbent banks. This paper analyzes the implications of these challenges on bank competitveness, and explores the factors that could support digital advancement in banks. The analysis shows that the traditionally leading role of banks in advancing financial technology has diminished in recent years, and suggests that onoing efforts to catch up to the digital frontier could lead to a more concentrated banking industry, as smaller and less tech-savvy banks struggle to survive. Cross-country evidence has suggested that banks in high-income economies appear to have been the digital leaders, likely benefiting from a sound digital infrastructure, a strong legal and business environment, and healthy competition. Nonetheless, some digital leaders may fall behind in the coming years in adopting newer technologies due to entrenched consumer behavior favoring older technologies, less active fintech and bigtech companies, and weak bank balance sheets.
    Keywords: Banks;WP;bank digitalization;digitalization progress;bank service digitalization;bank characteristic;bank competitiveness; Digitalization; bank concentration; bank condition; bank firm; Emerging technologies; Financial sector development; Global
    Date: 2021–02–19
  4. By: Khan, Nawab; Ray, Ram; Kassem, Hazem; Ihtisham, Muhammad; Abdullah, .; Asongu, Simplice; Ansah, Stephen; Zhang, Shemei
    Abstract: Increasing agricultural production and optimizing inorganic fertilizer (IF) use are imperative for agricultural and environmental sustainability. Mobile phone usage (MPU) has the potential to reduce IF application while ensuring environmental and agricultural sustainability goals. The main objectives of this study were to assess MPU, mobile phone promotion policy, and whether the mediation role of human capital can help reduce IF use. This study used baseline regression analysis and propensity score matching, difference-in-differences (PSM-DID) to assess the impact of MPU on IF usage. However, the two-stage instrumental variables method (IVM) was used to study the effects of mobile phone promotion policy on IF usage. This study used a national dataset from 7,987 rural households in Afghanistan to investigate the impacts of MPU and associated promotion policies on IF application. The baseline regression outcomes showed that the MPU significantly reduced IF usage. The evaluation mechanism revealed that mobile phones help reduce IF application by improving the human capital of farmers. Besides, evidence from the DID technique showed that mobile phone promotion policies lowered IF application. These results remained robust after applying the PSM-DID method and two-stage IVM to control endogenous decisions of rural households. This study results imply that enhancing the accessibility of wideband in remote areas, promoting MPU, and increasing investment in information communication technologies (ICTs) infrastructure can help decrease the IF application in agriculture. Thus, the government should invest in remote areas to facilitate access to ICTs, such as having a telephone and access to a cellular and internet network to provide an environment and facility to apply IF effectively. Further, particular policy support must focus on how vulnerable populations access the internet and mobile phone technologies.
    Keywords: mobile phone usage; propensity score matching; difference-in-difference; inorganic fertilizer usage; human capital; sustainable development; Afghanistan
    JEL: O1 Q1 Q50
    Date: 2021–01
  5. By: Paul Belleflamme; Martin Peitz; Eric Toulemonde
    Abstract: We introduce asymmetries across platforms in the linear model of competing two-sided platforms with singlehoming on both sides and fully characterize the price equilibrium. We identify market environments in which one platform has a larger market share on both sides while obtaining a lower profit than the other platform. This platform enjoys a competitive advantage on one or both sides. Our finding raises further doubts on using market shares as a measure of market power in platform markets.
    Keywords: Two-sided platforms, market share, market power, oligopoly, network effects, antitrust
    JEL: D43 L13 L86
    Date: 2020–08
  6. By: Ibáñez Colomo, Pablo
    Abstract: The proposal for a Digital Markets Act signals a new approach to the regulation of Big Tech in the EU and beyond.1 The legislative machine has been set in motion following a change in the attitude of authorities and stakeholders vis-à-vis the growing and transformative role of online platforms in the economy. It has been argued—including in a number of reports for public authorities2—that competition law, in its current incarnation, would be unable to address the challenges raised by Big Tech. According to this view, it would not be sufficiently effective to respond to the actual or potential effects resulting from the power wielded by these firms. Several alleged...
    Keywords: OUP deal
    JEL: L81
    Date: 2021–09–01
  7. By: M\'ed\'eric Motte (LPSM); Huy\^en Pham (LPSM)
    Abstract: With the emergence of new online channels and information technology, digital advertising tends to substitute more and more to traditional advertising by offering the opportunity to companies to target the consumers/users that are really interested by their products or services. We introduce a novel framework for the study of optimal bidding strategies associated to different types of advertising, namely, commercial advertising for triggering purchases or subscriptions, and social marketing for alerting population about unhealthy behaviours (anti-drug, vaccination, road-safety campaigns). Our continuoustime models are based on a common framework encoding users online behaviours via their web-browsing at random times, and the targeted advertising auction mechanism widely used on Internet, the objective being to efficiently diffuse advertising information by means of digital channels. Our main results are to provide semi-explicit formulas for the optimal value and bidding policy for each of these problems. We show some sensitivity properties of the solution with respect to model parameters, and analyse how the different sources of digital information accessible to users including the social interactions affect the optimal bid for advertising auctions. We also study how to efficiently combine targeted advertising and non-targeted advertising mechanisms. Finally, some classes of examples with fully explicit formulas are derived.
    Date: 2021–11
  8. By: Sarah Geschonke; Thomas Wein (Leuphana University of Lüneburg)
    Abstract: Internet users generously disclose personal information to consume supposedly “free” digital services despite severe privacy concerns—a phenomenon termed privacy paradox. Humanities have thoroughly studied this discrepancy in attitude and behavior, yet have not developed a conclusive explanation for its occurrence, let alone a means to counter it. Both the quantity and the quality of data privacy laws, as well as the increasing number of court rulings dealing with digital business models, show the urgent need to better understand the cause of the privacy paradox and to mitigate it. This paper analyzes the contradictory phenomenon from an economic point of view. By applying the two-state of the world-model, the authors demonstrate that uncertainty about the extent and the likelihood of a data breach are explanatory factors for the privacy paradox. Taking the European General Data Protection Regulation as an exemplary showcase, the authors further examine the role of privacy laws to offset Internet users’ inconsistent privacy behavior. In theory, such a “rights and remedies” scheme is intended to counter the uncertainty factors provoking the privacy paradox; however, in practice, this intention is only partially served.
    Keywords: Data protection, Privacy paradox, Legal remedies
    JEL: K24 L15 L86
    Date: 2020–08
  9. By: Sebastian Edwards
    Abstract: In this paper, I discuss the implications for emerging countries of the adoption of central bank digital currencies (CBDCs) in advanced jurisdictions, such as the United States, the United Kingdom, and the Euro Zone. The analysis identifies benefits as well as costs. Among the former, one of the most important is lower costs for migrants’ remittances. Some of the costs of global CBDCs are associated with currency substitution, sudden currency depreciations, and lower seigniorage. At the global level, a smooth rollout of CBDCs in center countries requires international coordination. In addition, emerging countries will benefit from the implementation of stronger macroprudential regulations
    JEL: E31 E41 E58 F31 F36
    Date: 2021–11
  10. By: Misha Perepelitsa
    Abstract: The problem of investing into a cryptocurrency market requires good understanding of the processes that regulate the price of the currency. In this paper we offer a view of a cryptocurrency market as self-organized speculative Ponzi scheme that operates on the platform of a price bubble spontaneously created by traders. The synergy between investors and traders creates an interesting dynamical patterns of the price and systematic risk of the system. We use microscale, agent-based models to simulate the system behavior and derive macroscale ODE models to estimate such parameters as the return rate and total value of investments. We provide the formula for the total risk of the system as a sum of two independent components, one being characteristic of the price bubble and the other of the investor behavior.
    Date: 2021–11
  11. By: Kento Yoshizawa (Bank of Japan); Kohei Maehashi (Bank of Japan); Hiroaki Yanagihara (Bank of Japan); Yoichi Kadogawa (Bank of Japan); Masakazu Inada (Bank of Japan)
    Abstract: In recent years, a phenomenon referred to as the gparadox of banknotes h has been observed worldwide: despite reduced opportunities to pay in cash due to the increase in cashless payments such as payment by credit card, the amount of banknotes in circulation has increased. Reasons that have been highlighted include the decline in the opportunity costs of holding cash amid the low interest rate environment as well as increased precautionary demand due to heightened economic uncertainty. Since the onset of the COVID-19 pandemic, this paradox has become more pronounced: cash in circulation has jumped even though opportunities to use cash have dropped sharply due to the economic downturn and the increase in e-commerce due to stay-at-home consumption. Our empirical analysis suggests that public health measures led to a significant increase in cash in circulation, with the effect being greatest immediately after the outbreak of pandemic and waning thereafter. It thus appears that developments in banknotes in circulation have been affected by precautionary demand for cash due to the heightened uncertainty brought about by the pandemic.
    Keywords: Banknotes; Cashless payments; COVID-19
    JEL: E41 E50 E51 E58
    Date: 2021–12–10
  12. By: Philippe Bacchetta (University of Lausanne; Centre for Economic Policy Research (CEPR); Swiss Finance Institute); Elena Perazzi (Ecole Polytechnique Fédérale de Lausanne)
    Abstract: The impact of Central Bank Digital Currency (CBDC) is analyzed in a small open economy model with monopolistic competition in banking and where CBDC is an imperfect substitute with bank deposits. The design of CBDC is characterized by its interest rate, its substitutability with bank deposits, and its relative liquidity. We examine how interest-bearing CBDC would affect the banking sector, public finance, GDP and welfare. Welfare may improve through three channels: seigniorage; a lower opportunity cost of money; and a redistribution away from bank owners. In our numerical analysis we find a maximum welfare improvement of 60 bps in consumption terms.
    Date: 2021–12
  13. By: Valentin Blanc; Erika Dewald; Marc Durand; Benjamin Fragny (ESPI2R - Laboratoire ESPI Réflexions et Recherches (1997-2021) - ESPI - Ecole Supérieure des Professions Immobilières); Youness Garah; Lolita Gillet (ESPI2R - Laboratoire ESPI Réflexions et Recherches (1997-2021) - ESPI - Ecole Supérieure des Professions Immobilières); Benoît Lopez; Isabelle Maleyre (ESPI2R - Laboratoire ESPI Réflexions et Recherches (1997-2021) - ESPI - Ecole Supérieure des Professions Immobilières); Fernanda Sabrinni-Chatelard (ESPI2R - Laboratoire ESPI Réflexions et Recherches (1997-2021) - ESPI - Ecole Supérieure des Professions Immobilières); Baptiste Saint-Martin; Eric Seulliet; Michaël Sigda; Jérôme Tixier; Inès Trojette (ESPI2R - Laboratoire ESPI Réflexions et Recherches (1997-2021) - ESPI - Ecole Supérieure des Professions Immobilières); Yannick Vincent; Cathy Zadra-Veil (ESPI - Ecole Supérieure des Professions Immobilières); Zadra-Veil Cathy (ESPI2R - Laboratoire ESPI Réflexions et Recherches (1997-2021) - ESPI - Ecole Supérieure des Professions Immobilières)
    Abstract: L'utilisation de la blockchain, technique d'enregistrement des données de façon vérifiable et infalsifiable, s'est développée depuis plusieurs années dans le monde de la finance. Graduellement, son usage se répand vers d'autres métiers, dont ceux, en particulier, de l'immobilier. Ces derniers sont marqués par des flux financiers très importants et par l'échange de multiples documents indispensables aux transactions immobilières. La blockchain semble être le moyen d'apporter davantage de transparence, de traçabilité, de simplification et d'automatisation des contrats avec une forme décentralisée et distribuée des opérations. L'équipe du laboratoire ESPI Réflexions et Recherches (ESPI2R) − rattaché au Groupe ESPI, l'École supérieure des professions immobilières −, en liaison avec Olarchy et avec LPA-CGR avocats ainsi qu'en collaboration avec des professionnels et des étudiants, a décidé d'initier un groupe de travail sur l'utilisation de la blockchain dans l'immobilier. Le résultat attendu de ce travail est matérialisé à travers ce Livre blanc et une première maquette d'implémentation du smart bail.
    Keywords: Blockchain,Immobilier,Smart Contrat,Token,Cryptomonnaie
    Date: 2021–10–14
  14. By: Markkula, Tuomas; Takalo, Tuomas
    Abstract: Declining ATM numbers pose a challenge for competition policy and financial regulatory authorities. In this report we review the Finnish experience of regulating the competition in the ATM industry. To analyze the Finnish developments we extend the model of Kopsakangas-Savolainen and Takalo (2014), and draw on the existing literature and benchmarks from the selected other countries. We document how changes in the ATM market regulation and market structure has decoupled the ATM network size from the declining cash use in Finland. The Finnish regulation has almost exclusively focused on foreign fees, while in general it would be better to regulate interchange fees. If the optimal fee regulation is not feasible, the authorities could also consider quantity regulation.
    Keywords: ATM industry,cash,competition policy,optimal regulation,retail payments
    Date: 2021
  15. By: Katsutoshi Takehana (Graduate School of Economics, Osaka University); Hisashi Tanizaki (Graduate School of Economics, Osaka University)
    Abstract: In this paper, we tried to evaluate the changes about the Funds Transfer Service that have been changed by the amendment of Payment Acts in 2020 and extract issues suggested by this change. In particular, the newly introduced gregulation on the retention of user fs money h can be evaluated as being consistent with the actual situation of funds transfer service providers and existing legal systems such as Investment Law. On the other hand, it can be also evaluated that this changes raised substantial issue related to the legal aspect of financial system how sustainable the current boundary between banks and fund transfer service provider is.
    Keywords: Payment Act, Funds transfer service provider, Bank, regulation on the retention of user fs money
    JEL: E42
    Date: 2021–11
  16. By: Mr. Manmohan Singh; Mr. Peter Stella
    Abstract: In this paper, we discuss the modern history of monetarism and its alternatives, as well as the changing empirical relationship of various measures of money and inflation. After demonstrating that previous naïve correlations between money and inflation as established in the 20th century literature have largely disappeared, we explain why this cannot be taken as support for an increased reliance on permanent monetary finance. Rather, we argue that rapid technological innovation in payments systems—both public and private—including in global pledged collateral markets, portends a declining demand for central bank liabilities.
    Keywords: money aggregates;monetary financing;central bank balance sheet;WP;bank reserves;interest rate;financial market;balance sheet expansion;money demand
    Date: 2021–01–08
  17. By: Rösl, Gerhard; Seitz, Franz
    Abstract: In this paper, we focus on the role of different types of crises (technological crises, financial market crises, natural disasters) and their effects on the demand for cash in an international context. It becomes evident that over the past 30 years cash demand always increased in times of crises, independent of the nature of the crisis itself.However, the type of crises determines whether small or large banknote denominations are affected more. In case of payment uncertainties, we find a crisis-related increased demand for small denominations, probably reflecting an increased demand for transaction balances. In times of uncertainties regarding the financial and/or general economic development (also possibly driven by natural disasters), large banknote denominations were comparatively more in demand indicating that the crises-related need for non-transaction balances was the dominant driver.
    Keywords: Cash,banknotes,crises,Covid
    JEL: E41 E51 E58
    Date: 2021
  18. By: Daniele Bianchi; Mykola Babiak
    Abstract: We investigate the dynamics of daily realised returns and risk premiums for a large cross-section of cryptocurrency pairs through the lens of an Instrumented Principal Component Analysis (IPCA) (see Kelly et al., 2019). We show that a model with three latent factors and time-varying factor loadings significantly outperforms a benchmark model with observable risk factors: the total (predictive) R2 from the IPCA is 17.2% (2.9%) for individual returns, against a benchmark 9.6% (-0.02%) obtained from a model with six observable risk factors explored in previous literature. By looking at the characteristics that significantly matter for the dynamics of risk premiums, we provide robust evidence that liquidity, size, reversal, and both market and downside risks represent the main driving factors behind expected returns. These results hold for both individual assets and characteristic-based portfolios, pre and post the Covid-19 outbreak, and for weekly individual and portfolio returns.
    Keywords: cryptocurrency markets; instrumented PCA; asset pricing; factor models; risk premiums;
    JEL: G11 G12 G17 C23
    Date: 2021–11
  19. By: Florent Saucède (UMR MoISA - Montpellier Interdisciplinary center on Sustainable Agri-food systems (Social and nutritional sciences) - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - IRD - Institut de Recherche pour le Développement - CIHEAM-IAMM - Centre International de Hautes Etudes Agronomiques Méditerranéennes - Institut Agronomique Méditerranéen de Montpellier - CIHEAM - Centre International de Hautes Études Agronomiques Méditerranéennes - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)
    Abstract: Some food system actors are experimenting with blockchain to bring transparency to food products regarding their origins and production processes. To build transparency, all actors in a specific supply chain must share sensitive data in the blockchain. This creates an end-to-end, real-time, shared and tamperproof traceability system, from which information can be made available to consumers, but also exploited to improve the functioning and sustainability of the supply chain. Blockchain invites food supply chains to become participative, but also subject to permanent monitoring. These are unheard of conditions, and the implications for supply chain coordination, actors' behaviour, and inter-organisational dynamics are not well understood. This JCJC project explores how blockchain transforms food supply chains to understand how to design and implement more participative, transparent, and efficient supply chains likely to contribute to the transition to more sustainable food systems.
    Abstract: Certains acteurs des systèmes alimentaires testent les atouts de la blockchain pour rendre les produits alimentaires transparents sur leurs origines et modes de production. Tous les acteurs de la chaîne d'approvisionnement doivent alors partager des données sensibles dans la blockchain. Il en résulte un système de traçabilité de bout-en-bout, en temps réel, infalsifiable et visible par tous. Il peut être exploité pour informer les consommateurs, mais aussi pour améliorer le fonctionnement et la durabilité de la chaîne. La blockchain permet aux chaînes de devenir participatives, mais les place sous surveillance constante. C'est une situation inédite, ses conséquences sur la coordination des chaines, le comportement des acteurs et les dynamiques inter-organisationnelles sont inconnues. Ce projet JCJC vise à comprendre comment la blockchain transforme les chaînes d'approvisionnement, pour rendre ces dernières participatives, transparentes, efficaces et contributives de systèmes alimentaires plus durables.
    Keywords: Blockchain,Food system,Supply chain,Traceability,Sustainability,Système alimentaire,Traçabilité,Durabilité
    Date: 2021–11–23

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