nep-pay New Economics Papers
on Payment Systems and Financial Technology
Issue of 2022‒10‒03
twenty-one papers chosen by

  1. Decentralized finance research and developments around the World By Ozili, Peterson K
  3. Targeted Incentives, Broad Impacts: Evidence from an E-commerce Platform By Xiang Hui; Meng Liu; Tat Chan
  4. What triggers consumer adoption of CBDC? By Michiel Bijlsma; Carin van der Cruijsen; Nicole Jonker; Jelmer Reijerink
  5. Analysing Digital economy Strategy of Malawi against the Digital Economy Ecosystem Framework By Makoza, Frank
  6. Open Markets in the Era of Fintech and Big Tech: Lessons for the Institutional Design of Competition Policy By Jens-Uwe Franck
  7. Governance in systems based on distributed ledger technology (DLT): a comparative study By Ellen Naudts; Timothy Aerts; Leonard Franken; Aimo Pieterse
  8. Grasping De(centralized) Fi(nance) through the Lens of Economic Theory By Jonathan Chiu; Thorsten V. Koeppl; Charles M. Kahn
  9. Digital Privacy: GDPR and Its Lessons for Australia By Ratul Das Chaudhury; Chongwoo Choe
  10. The Efficient Market Hypothesis for Bitcoin in the context of neural networks By Mike Kraehenbuehl; Joerg Osterrieder
  11. Metanomics: Adaptive market and volatility behaviour in Metaverse By Shah, Anand; Bahri, Anu
  12. Cryptocurrency bubbles, the wealth effect, and non-fungible token prices: Evidence from metaverse LAND By Kanis Saengchote
  13. Gamblified digital product offerings: an experimental study of loot box menu designs By Adam, Martin; Röthke, Konstantin; Benlian, Alexander
  14. Environmental and Social Preferences and Investments in Crypto-Assets By Pavel Ciaian; Andrej Cupák; Pirmin Fessler; d’Artis Kancs
  15. Information Technology, Business Sustainability and Female Economic Participation in Sub-Saharan Africa By Simplice A. Asongu; Mushfiqur Rahman; Mohammad Alghababsheh
  16. G2P digital payments and financial inclusion for social resilience By International Policy Centre for Inclusive Growth; World Food Programme (WFP) Mozambique
  17. The Rise and Fall of Paper Money in Yuan China, 1260-1368 By Hanhui Guan; Nuno Palma; Meng Wu
  18. Cyber risk in central banking By Sebastian Doerr; Leonardo Gambacorta; Thomas Leach; Bertrand Legros; David Whyte
  19. Sustainable aim and personal gain? How sustainable value affects the relation between personal value and crowdfunding success By Siebeneicher, Sven; Bock, Carolin
  20. Essays on behavioral finance and corporate finance By Shen, Lingbo
  21. Money Follows the Person: Updated State Transitions as of December 31, 2020 By Victoria Peebles; Johanna Dolle

  1. By: Ozili, Peterson K
    Abstract: Decentralized finance is financial services offered on a public blockchain over the internet. This paper reviews the decentralized finance (DeFi) research and development around the world. The findings of the literature review are that decentralized finance offers many benefits such as broadening financial inclusion; encouraging permission-less innovation; eliminating the need for intermediaries; ensuring the immutability of transactions; censorship resistance and making cross-border transactions cheaper. The associated risks include execution risk in smart contracts, legal liability risk, data theft risk, interconnectedness risk, external data risk, and greater propensity for illicit activity using DeFi applications. The review of existing DeFi research show that there are few studies on DeFi, and a large number of DeFi research studies are non-empirical studies. Most studies hold a positive view about DeFi. They emphasize the benefits of DeFi in great depth but the challenges of DeFi were not analysed in great depth, and there are no critical studies on DeFi. Observations on DeFi developments from around the world show that there is growing interest in decentralized finance in Europe, U.S., Asia and Oceania. There are concerns that regulating decentralized finance can impede growth in decentralized finance markets in Asia. There are also concerns that banning crypto assets can hinder the growth of decentralized finance in African countries where regulators do not fully permit blockchain-enabled cryptocurrencies. Several policy issues associated with DeFi are discussed. Areas for further research are provided to advance the literature on decentralized finance.
    Keywords: decentralized finance, DeFi, blockchain, ethereum, cryptocurrency, distributed ledger technology, protocol, token, total valued locked, smart contract, digital currency, literature review.
    JEL: G21 G24 G28 O31 O38
    Date: 2022
  2. By: Krupa Mehta
    Abstract: Digital marketing is a way to promote brands and products online and through other digital channels. Aims to help businesses reach these target consumers through the internet and other digital avenues. There are a number of different digital technologies that marketers and companies use to get their marketing message to their target audience. Digital marketing is vital for modern businesses because the internet plays a significant role in how today’s consumer makes purchasing decisions. The internet also impacts how consumers actually purchase their products and services. This makes it imperative for businesses to not only be present online but to boost visibility as much as possible. Key words: Social Media, Digital Marketing, Latest Trends, Entrepreneurs.
    Date: 2022–03
  3. By: Xiang Hui; Meng Liu; Tat Chan
    Abstract: Digital platforms sometimes offer incentives to a subset of sellers to nudge behavior, possibly affecting the behavior of all sellers in the equilibrium. In this paper, we study a policy change on a large e-commerce platform that offers financial incentives only to platform-certified sellers when they provide fast handling and generous return policies on their listings. We find that both targeted and non-targeted sellers become more likely to adopt the promoted behavior after the policy change. Exploiting a large number of markets on the platform, we find that in markets with a larger proportion of the targeted population—hence more affected by the policy change—non-targeted sellers are more likely to adopt the promoted behavior and experience a larger increase in sales and equilibrium prices. This finding is consistent with our key insight that a targeted incentive may increase demand for non-targeted sellers when both platform certificates and the promoted behaviors are quality signals. Our results have managerial implications for digital platforms that use targeted incentives.
    Keywords: targeted incentives, quality provision, signalling, demand expansion
    Date: 2022
  4. By: Michiel Bijlsma; Carin van der Cruijsen; Nicole Jonker; Jelmer Reijerink
    Abstract: Central banks around the world are examining the possibility of introducing Central Bank Digital Currency (CBDC). The public’s preferences concerning the usage of CBDC for paying and saving are important determinants of the success of CBDC. Using data from a representative panel of Dutch consumers we find that roughly half of the public would open a CBDC current account. The same holds for a CDBC savings account. Thus, we find clear potential for CBDC in the Netherlands. This suggests that consumers perceive CBDC as distinct from current and savings accounts offered by traditional banks. Intended adoption is positively related to respondents’ knowledge of CBDC and trust in banks and in the central bank. Price incentives matter as well. The amount respondents want to deposit in the CBDC savings account depends on the interest rate offered. Furthermore, intended usage of the CBDC current account is highest among people who find privacy and security important and among consumers with low trust in banks in general. These results suggest that central banks can steer consumers’ adoption of CBDC via the interest rate, by a design of CBDC that takes into account the public’s need for security and privacy, and by clear communication about what CBDC entails.
    Keywords: CBDC; consumers; public money; private money; bank accounts; trust; interest rates
    JEL: D12 D14 E58 G21
    Date: 2021–04
  5. By: Makoza, Frank
    Abstract: African countries are considering digital economy strategies to enhance their competitiveness, create economic value and improve the well-being of their citizens. This paper analysed the Malawi digital economy strategy (2021-2026) against the Digital Economy Ecosystem Framework. The findings showed consistency in elements for macro policy, digital foundations and digital adoption/Transformation; and core, services and solutions respectively. Nonetheless, some of the elements in the Malawi digital economy strategy were missing details and required attention. These include digital taxation, data sector, digital services laws and regulations and cyber security. Lack of details in these elements in the Malawi digital economy strategy can affect the planned activities and outcomes of the strategy. The study contributes towards an understanding of digital economy strategies in the context of developing countries.
    Keywords: Digital economy,Digital economy strategy,Digital Economy Kit,Digital technologies
    Date: 2022
  6. By: Jens-Uwe Franck
    Abstract: This paper analyses three routes for the formation of market-opening rules: competition enforcement, legislation, and UK-style market investigation. Using case studies on facilitating market access for innovative payment services, we identify essential features and limitations of the different modes of rulemaking. The interrelation between them is explored, revealing the merits of having them available in parallel.
    Keywords: competition policy, institutional design, competition law, regulation, market investigation, open banking, fintech, big tech, payment services
    JEL: K21
    Date: 2022–09
  7. By: Ellen Naudts; Timothy Aerts; Leonard Franken; Aimo Pieterse
    Abstract: The (experimental) use of DLT is growing, also in the financial sector. DLT systems themselves advocate the fact that they use (consensus) algorithms and cryptography to create a leaderless system (horizontal). How is it possible to ensure that decisions in these DLT systems are in the interest of all stakeholders and the public interest, including supervisory authorities? Given the popularity of the Bitcoin and Ethereum blockchains, for example, it is not inconceivable that a part of the FMI will be based on a public DLT system in the future. It is therefore important to gain a better understanding of the governance of such DLT systems, and what the risks are for FIs when using DLT. This paper compares the governance of financial institutions (FIs) and financial market infrastructures (FMIs) on the one hand with the governance of systems based on distributed ledger technology (DLT systems), on the other, to discover how they differ, and where potential risks and benefits lie for their future use, also in the financial markets. We answer two questions: i) What are the differences in governance between traditional FIs, FMIs and DLT systems? and ii) What are the consequences of decentralized governance of DLT systems for supervisory authorities?
    Keywords: Comparative study of governance in DLT systems; Managerial and operational governance; Horizontal and vertical governance; tipping point;Public DLT Systems and Private DLT Systems
    JEL: G3 M15 M41
    Date: 2021–06
  8. By: Jonathan Chiu (Bank of Canada); Thorsten V. Koeppl; Charles M. Kahn
    Abstract: In this viewpoint article, we provide an analysis of the value proposition of De(centralized) Fi(nance) and its limitations using a simple stylized model of collateralized lending. DeFi uses a decentralized ledger to run smart contracts that automatically enforce the terms of a lending contract and safeguard the collateral. DeFi can lower the costs associated with intermediated lending and improve nancial inclusion. Limitations are the volatility of crypto collateral and stablecoins used for settlement, the possible incompleteness of smart contracts and the lack of a reliable oracle. A proper infrastructure reducing such limiations could improve the value of DeFi.
    Keywords: Decentralized Finance, Cryptocurrency, Stablecoins, Collateralized Lending
    JEL: G2
    Date: 2022–08
  9. By: Ratul Das Chaudhury (Postdoctoral Research Fellow, Centre for Global Business, Monash Business School); Chongwoo Choe (Director, Centre for Global Business, and Professor, Department of Economics, Monash Business School)
    Abstract: Australia’s Privacy Act 1988 is under review with a view to bringing Australia’s privacy laws into the digital era, more in line with the European Union’s General Data Protection Regulation (GDPR). This article discusses how the GDPR can be refined and standardized to be more effective in protecting privacy in the digital era while not adversely affecting the digital economy that relies heavily on data. We argue that an ideal data policy should be informative and transparent about the potential privacy costs while giving consumers a menu of opt-in choices into which they can self-select themselves.
    Keywords: digital privacy, GDPR, opt-in
    JEL: K24
    Date: 2022–09
  10. By: Mike Kraehenbuehl; Joerg Osterrieder
    Abstract: This study examines the weak form of the efficient market hypothesis for Bitcoin using a feedforward neural network. Due to the increasing popularity of cryptocurrencies in recent years, the question has arisen, as to whether market inefficiencies could be exploited in Bitcoin. Several studies we refer to here discuss this topic in the context of Bitcoin using either statistical tests or machine learning methods, mostly relying exclusively on data from Bitcoin itself. Results regarding market efficiency vary from study to study. In this study, however, the focus is on applying various asset-related input features in a neural network. The aim is to investigate whether the prediction accuracy improves when adding equity stock indices (S&P 500, Russell 2000), currencies (EURUSD), 10 Year US Treasury Note Yield as well as Gold&Silver producers index (XAU), in addition to using Bitcoin returns as input feature. As expected, the results show that more features lead to higher training performance from 54.6% prediction accuracy with one feature to 61% with six features. On the test set, we observe that with our neural network methodology, adding additional asset classes, no increase in prediction accuracy is achieved. One feature set is able to partially outperform a buy-and-hold strategy, but the performance drops again as soon as another feature is added. This leads us to the partial conclusion that weak market inefficiencies for Bitcoin cannot be detected using neural networks and the given asset classes as input. Therefore, based on this study, we find evidence that the Bitcoin market is efficient in the sense of the efficient market hypothesis during the sample period. We encourage further research in this area, as much depends on the sample period chosen, the input features, the model architecture, and the hyperparameters.
    Date: 2022–06
  11. By: Shah, Anand; Bahri, Anu
    Abstract: This study presents stylized facts of the fungible tokens/currencies (MANA/USD and SAND/USD) in the Metaverses (Decentraland and The Sandbox). Metaverse currency exchange rate market exhibits very high conditional volatility, albeit no leverage effect, less impact of the real-world crisis (Global Lockdown due to COVID 19 pandemic) and low correlation with either cryptocurrency index (CCi30) or real-world equity index (S&P 500). Surprisingly, MANA and SAND – fungible tokens/ currencies in different Metaverses exhibit significant and increasing correlation between each other. The relative market efficiency of Metaverse currency market is comparable to that observed in the cryptocurrency and equity markets in the real-world.
    Keywords: Metanomics, Metaverse, Fungible Tokens, Cryptocurrency, Non-Fungible Tokens (NFTs), Blockchain, Adaptive Market Hypothesis, Dynamic Conditional Correlation
    JEL: G01 G11 G14 G32
    Date: 2022–09–01
  12. By: Kanis Saengchote
    Abstract: The rapid rise of cryptocurrency prices led to concerns (e.g. the Financial Stability Board) that this wealth accumulation could detrimentally spill over into other parts of the economy, but evidence is limited. We exploit the tendency for metaverses to issue their own cryptocurrencies along with non-fungible tokens (NFTs) representing virtual real estate ownership (LAND) to provide evidence of the wealth effect. Cryptocurrency prices and their corresponding real estate prices are highly correlated (more than 0.96), and cryptocurrency prices Granger cause LAND prices. This metaverse bubble reminisces the 1920s American real estate bubble that preceded the 1929 stock market crash.
    Date: 2022–09
  13. By: Adam, Martin; Röthke, Konstantin; Benlian, Alexander
    Date: 2022
  14. By: Pavel Ciaian; Andrej Cupák (National Bank of Slovakia); Pirmin Fessler; d’Artis Kancs
    Abstract: Individuals invest in Environmental-Social-Governance (ESG)-assets not only because of (higher) expected returns but also driven by ethical and social considerations. Less is known about ESG-conscious investor subjective beliefs about crypto-assets and how these compare to traditional assets. Controversies surrounding the ESG footprint of certain crypto-asset classes – mainly on grounds of their energy-intensive crypto mining – offer a potentially informative object of inquiry. Leveraging a unique representative household finance survey for the Austrian population, we examine whether investors’ environmental and social preferences can explain cross-sectional differences in individual portfolio exposure to crypto-assets. We find a strong association between investors’ environmental and social preferences and the crypto-investment exposure but no significant relationship for the benchmarks of traditional asset classes such as bonds and shares.
    JEL: D14 G11 G41
    Date: 2022–09
  15. By: Simplice A. Asongu (Yaounde, Cameroon); Mushfiqur Rahman (University of Wales Trinity Saint David, UK); Mohammad Alghababsheh (Mutah University, Jordan)
    Abstract: This study assesses how business/financial sustainability in the perspective of financial stability moderates information technology to influence female economic participation in 49 countries in Sub-Saharan Africa for the period 2008-2018. The empirical evidence is based on Tobit regressions that enabled the study to account for the censored nature of the outcome variables. The following important findings are established. First, ICT dynamics (mobile phone penetration, internet penetration and fixed broadband subscriptions) are consistently moderated by business sustainability to positively affect female employment in the industry. Second, business sustainability scores need to exceed certain thresholds before moderating fixed broadband subscriptions to induce favorable overall effects on female employment, female labour force participation and female unemployment rates. These thresholds are 18.742 and 19.505 Z-scores for positive effects on female employment and female labour force participation, respectively and a Z-score of 17.300 for a negative impact on female unemployment. The thresholds which should be exceeded are within policy reach, make economic sense and are policy relevant. The study contributes to the extant literature by providing actionable thresholds of business sustainability that can be employed by policy makers in order for information technology to positively influence female economic inclusion in Sub-Saharan Africa.
    Keywords: information technology; business sustainability, gender inclusion
    JEL: E23 F21 F30 L96 O55
    Date: 2022–01
  16. By: International Policy Centre for Inclusive Growth (IPC-IG); World Food Programme (WFP) Mozambique (IPC-IG)
    Keywords: digitalisation; financial inclusion; social resilience
    Date: 2022–08
  17. By: Hanhui Guan; Nuno Palma; Meng Wu
    Abstract: Following the Mongol invasion of China, the Yuan (1260–1368) dynasty was the first political regime in history able to deploy paper money as the sole legal tender. Drawing on a new dataset on money issues, imperial grants, and prices, we show that a silver standard initially consolidated the Chinese currency market. However, persistent fiscal pressures eventually compelled rulers to ease the monetary standard, and a fiat standard was adopted, leading to inflation levels which doubled the price level in less than a decade. We show that military pressure generated fiscal demands which led to over-issuance, and we reject the role of excessive imperial grants in triggering the over-issue of money.
    Keywords: Paper money; silver standard; fiat money; Yuan China
    JEL: E42 N15 N45
    Date: 2022–09
  18. By: Sebastian Doerr; Leonardo Gambacorta; Thomas Leach; Bertrand Legros; David Whyte
    Abstract: The rising number of cyber attacks in the financial sector poses a threat to financial stability and makes cyber risk a key concern for policy makers. This paper presents the results of a survey among members of the Global Cyber Resilience Group on cyber risk and its challenges for central banks. The survey reveals that central banks have notably increased their cyber security-related investments since 2020, giving technical security control and resiliency priority. Central banks see phishing and social engineering as the most common methods of attack, and the potential losses from a systemically relevant cyber attack are deemed to be large, especially if the target is a big tech providing critical cloud infrastructures. Generally, respondents judge the preparedness of the financial sector for cyber attacks to be inadequate. While central banks in most emerging market economies provide a framework for the collection of information on cyber attacks on financial institutions, less than half of those in advanced economies do. Cooperation among public authorities, especially in the international context, could improve central banks' ability to respond to cyber attacks.
    Keywords: cyber risk, central banks, financial institutions, cloud services, cyber regulation
    JEL: E5 E58 G20 G28
    Date: 2022–09
  19. By: Siebeneicher, Sven; Bock, Carolin
    Date: 2022–08–19
  20. By: Shen, Lingbo (Tilburg University, School of Economics and Management)
    Date: 2022
  21. By: Victoria Peebles; Johanna Dolle
    Abstract: From the time transitions began in 2008 to the end of 2020, states had transitioned 107,128 people to community living through Money Follows the Person (MFP). MFP transitions varied by state and target population over time.
    Keywords: Money Follows the Person, Semi-Annual Report, Transitions, Long-Term Services and Supports, MFP, LTSS

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