nep-pay New Economics Papers
on Payment Systems and Financial Technology
Issue of 2023‒05‒29
twenty-two papers chosen by

  1. Telecommunications regulation, mobile money innovations and financial inclusion By Simplice A. Asongu
  2. The Global Pandemic, Laboratory of the Cashless Economy? By Jeremy Srouji; Dominique Torre
  3. Blockchain Economics By Joseph Abadi; Markus K. Brunnermeier
  4. A Simple Model of a Central Bank Digital Currency By Bineet Mishra; Eswar S. Prasad
  5. The Unintended Consequences of Censoring Digital Technology -- Evidence from Italy's ChatGPT Ban By David H. Kreitmeir; Paul A. Raschky
  6. Occasional paper on Stablecoins By Banco de Portugal working group on crypto-assets
  7. Social and institutional determinants of digital financial inclusion in Africa: A system GMM Approach By Evans, Olaniyi
  8. The Bitcoin–Macro Disconnect By Gianluca Benigno; Carlo Rosa
  9. Automatic vs Manual Investing: Role of Past Performance By Said Kaawach; Oskar Kowalewski; Oleksandr Talavera
  10. The Promise of Crowdlending in Financing Agenda 2030 By Héloïse Berkowitz; Antoine Souchaud
  11. How would the war and the pandemic affect the stock and cryptocurrency cross-market linkages? By Bampinas, Georgios; Panagiotidis, Theodore
  12. Game-theoretic analysis of Net Neutrality effects By Taipov Mikhail
  13. Diamond-Dybvig and Beyond: On the Instability of Banking By Chao Gu; Cyril Monnet; Ed Nosal; Randall Wright
  14. Toward net 0: Digital CO2 proofs for the sustainable transformation of the European economy By Leinauer, Christina; Körner, Marc-Fabian; Strüker, Jens
  15. Financial Inclusion, Economic Development, and Inequality: Evidence from Brazil By Julia Fonseca; Adrien Matray
  16. Big data, news diversity and financial market crash By Sabri Boubaker; Zhenya Liu; Ling Zhai
  17. E-commerce and parcel delivery: environmental policy with greens consumers By Claire Borsenberger; Helmuth Cremer; Denis Joram; Jean-Marie Lozachmeur; Estelle Malavolti
  19. Representation and Intensity of Preferences: A Public Economics Analysis of Liquid Democracy By Philémon Poux
  20. Migration, remittances and well-being in Kosovo By Arapi-Gjini, Arjola
  21. Real Effects of Supplying Safe Private Money By Xu, Chenzi; Yang, He
  22. Effects of Information Overload on Financial Markets: How Much Is Too Much? By Alejandro Bernales; Marcela Valenzuela; Ilknur Zer

  1. By: Simplice A. Asongu (Yaounde, Cameroon)
    Abstract: This study assesses how corporate telecommunication (telecom) policies follow telecom sector regulation in mobile money innovation for financial inclusion in developing countries. Telecom policies are understood in terms of mobile subscriptions, mobile connectivity coverage and mobile connectivity performance while mobile money innovations represent mobile money accounts, the mobile used to send money and the mobile used to receive money. The empirical evidence is based on Tobit regressions. Telecom sector regulation positively influences mobile money innovations. From net influences, mobile subscriptions and connectivity policies moderate telecom sector regulation to positively influence mobile money innovations; exclusively within the remit of mobile money accounts because the corresponding net influences on the mobile used to send money and the mobile used to receive money are negative. The interactive influences are consistently negative and hence, thresholds for complementary policies are provided in order to maintain the positive influence of telecom sector regulation on mobile money innovations. This study has complemented the extant literature by assessing how corporate telecommunication policies follow telecommunication sector regulation in mobile money innovations for financial inclusion.
    Keywords: Mobile money; technology diffusion; financial inclusion; inclusive innovation
    JEL: D10 D14 D31 D60 O30
    Date: 2023–01
  2. By: Jeremy Srouji (Université Côte d'Azur, France; GREDEG CNRS); Dominique Torre (Université Côte d'Azur, France; GREDEG CNRS)
    Abstract: The COVID-19 pandemic has had a profound impact on payment systems and preferences around the world, reducing the use of cash in favor of digital payment instruments and accelerating the discussion around the need for a central bank digital currency. This article presents the digital payments and cashless agenda both before and after the pandemic, focusing on how the changing payments landscape has influenced the priorities and decisions of regulators, banks and other financial intermediaries with regards to the future shape of payment systems. It finds that while the pandemic has demonstrated the benefits associated with building an advanced, competitive and integrated digital payments eco-system, it has also brought to the forefront more disparities and fragmentation than convergence between payment systems in different regions of the world.
    Keywords: Central bank digital currencies, CBDC, digital payments, mobile money, cashless, payment systems, e-wallets
    Date: 2022–05
  3. By: Joseph Abadi; Markus K. Brunnermeier
    Abstract: The fundamental problem in digital record-keeping is establishing consensus on an update to a ledger, e.g., a payment. Consensus must be achieved in the presence of faults—situations in which some computers are offline or fail to function appropriately. Traditional centralized record-keeping systems rely on trust in a single entity to achieve consensus. Blockchains decentralize record-keeping, dispensing with the need for trust in a single entity, but some instead build a consensus based on the wasteful expenditure of computational resources (proof-of-work). An ideal method of consensus would be tolerant to faults, avoid the waste of computational resources, and be capable of implementing all individually rational transfers of value among agents. We prove a Blockchain Trilemma: any method of consensus, be it centralized or decentralized, must give up (i) fault-tolerance, (ii) resource-efficiency, or (iii) full transferability.
    Keywords: Blockchain; Consensus; Cryptocurrency; Mechanism Design; Payments; FinTech
    JEL: D80 E42 G00
    Date: 2022–05–03
  4. By: Bineet Mishra; Eswar S. Prasad
    Abstract: We develop a general equilibrium model that highlights the trade-offs between physical and digital forms of retail central bank money. The key differences between cash and central bank digital currency (CBDC) include transaction efficiency, possibilities for tax evasion, and, potentially, nominal rates of return. We establish conditions under which cash and CBDC can co-exist and show how government policies can influence relative holdings of cash, CBDC, and other assets. We illustrate how a CBDC can facilitate negative nominal interest rates and helicopter drops, and also how a CBDC can be structured to prevent capital flight from other assets.
    JEL: E4 E5 E61
    Date: 2023–04
  5. By: David H. Kreitmeir; Paul A. Raschky
    Abstract: We analyse the effects of the ban of ChatGPT, a generative pre-trained transformer chatbot, on individual productivity. We first compile data on the hourly coding output of over 8, 000 professional GitHub users in Italy and other European countries to analyse the impact of the ban on individual productivity. Combining the high-frequency data with the sudden announcement of the ban in a difference-in-differences framework, we find that the output of Italian developers decreased by around 50% in the first two business days after the ban and recovered after that. Applying a synthetic control approach to daily Google search and Tor usage data shows that the ban led to a significant increase in the use of censorship bypassing tools. Our findings show that users swiftly implement strategies to bypass Internet restrictions but this adaptation activity creates short-term disruptions and hampers productivity.
    Date: 2023–04
  6. By: Banco de Portugal working group on crypto-assets
    Abstract: Although the terminology used to define stablecoins is currently ambiguous, they can be broadly defined as a specific type of crypto-asset that aims to maintain a stable value relative to a specified currency, asset, or pool of currencies/assets. This paper characterises different types of stablecoins according to the stabilisation mechanism used and analyses the current stablecoins’ market. It also describes the regulatory framework applicable to stablecoins in a few selected jurisdictions. The main focus of the paper is the identification of the main risks associated with stablecoins, particularly the so-called global stablecoins, i.e., those stablecoins with a potential to be adopted across different jurisdictions and achieve a substantial volume. Finally, the paper concludes that continuous monitoring of the stablecoins’ market should be pursued, given their increasing relevance and potential impact on the financial sector.
    JEL: E42 E51 E58 F31 G21 G23 G28 L50 O32 O33
    Date: 2023
  7. By: Evans, Olaniyi
    Abstract: African nations have shown remarkable promise in digital financial services in recent years. However, much more remains to be done. Given this background, this study empirically investigates the social and institutional determinants of digital financial inclusion for a panel of 42 African countries using system GMM for the period 1995-2018. The empirical results show that social factors such as literacy, infrastructure, unemployment rate and standard of living have significant influence on digital financial inclusion. These results suggest that social realities matter for digital financial services. Equally, institutional factors such as political stability and absence of violence, control of corruption, regulatory quality, government effectiveness and rule of law have statistically significant and positive effects. These results suggest that better governance and better institutions correlate with faster digital financial inclusion. The estimates are robust to changes in estimation methods.
    Keywords: digital financial services, social and institutional determinants
    JEL: O3 O33 O35
    Date: 2022
  8. By: Gianluca Benigno; Carlo Rosa
    Abstract: This paper investigates the link between Bitcoin and macroeconomic fundamentals by estimating the impact of macroeconomic news on Bitcoin using an event study with intraday data. The key result is that, unlike other U.S. asset classes, Bitcoin is orthogonal to monetary and macroeconomic news. This disconnect is puzzling as unexpected changes in discount rates should, in principle, affect the price of Bitcoin even when interpreting Bitcoin as a purely speculative asset.
    Keywords: Bitcoin; asset prices; United States; high-frequency data; monetary surprises; macroeconomic announcements
    JEL: F3 F4 G1
    Date: 2023–02–01
  9. By: Said Kaawach (University of Huddersfield); Oskar Kowalewski (IESEG School of Management); Oleksandr Talavera (University of Birmingham)
    Abstract: Using unique data from a leading peer-to-peer (P2P) lending platform, we investigate the link between past investment performance and choice of auto-investing tool. Our results suggest that investors with poorly performing loan portfolios are more likely to switch automatically. This negative relationship can be explained by algorithmic aversion or investor inattention. In other words, the results suggest that good-performing investors who pay close attention to their loan portfolios or are not interested in using automated services are more likely to rely on themselves in manual mode. These results are robust to alternative specifications.
    Keywords: FinTech; Peer-to-Peer Lending; Investor Switching; Automatic Bidding
    JEL: G11 G40 G51 D90
    Date: 2023–05
  10. By: Héloïse Berkowitz (LEST - Laboratoire d'Economie et de Sociologie du Travail - AMU - Aix Marseille Université - CNRS - Centre National de la Recherche Scientifique, AMU - Aix Marseille Université); Antoine Souchaud (NEOMA - Neoma Business School, i3-CRG - Centre de recherche en gestion i3 - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - I3 - Institut interdisciplinaire de l’innovation - CNRS - Centre National de la Recherche Scientifique)
    Abstract: Crowdlending is an investment tool that appeared in the early 2000s. This tool allows individuals and companies, via an online platform, to finance directly, in the form of remunerated loans and in a traceable way, projects which are presented to them and on which they can interact publicly. This tool therefore encourages the development of direct financing decided by a crowd of contributors who place their trust in project leaders via an extremely transparent, rapid and cheap online selection and subscription process. This chapter aims to analyze the potential of this new financing tool to induce the necessary transformation the financial system required in order to achieve the SDGs. Financing is indeed at the heart of Agenda 2030. It is also an issue that explicitly touches on two SDGs: SDG 8.3 (development of SMEs) and SDG 9.3 (access to financial services for all enterprises). Crowdfunding is indeed one of the answers identified by the August 2020 United Nations report "Citizen's Money: Harnessing digitalization to finance a sustainable future". It is now a question of truly developing this tool, which aims to put the human being and sustainable development at the heart of the lending relationship.
    Date: 2023
  11. By: Bampinas, Georgios; Panagiotidis, Theodore
    Abstract: This paper studies the cross-market linkages between six international stock markets and the two major cryptocurrency markets during the Covid-19 pandemic and the Russian invasion of Ukraine. By employing the local (partial) Gaussian correlation approach, we find that during the Covid-19 pandemic period both cryptocurrency markets possess limited diversification and safe haven properties, which further diminish during the war. Bootstrap tests for contagion suggest that during the Covid-19 pandemic the East Asian markets lead the transmission of contagion towards the two cryptocurrency markets. During the Russian invasion, the US stock market emerges as the principal transmitter of contagion. Uncovering the role of pandemic (Infectious Disease EMV Index) and geopolitical risk (GPR index) induced uncertainties, we find that under conditions of high uncertainty and financial distress the dependency between the US and UK stock markets with both cryptocurrency markets increases considerably. The latter is more profound during the Russian-Ukrainian conflict.
    Keywords: Bitcoin, Ethereum, cryptocurrency, stock market, tail dependence, local Gaussian partial correlation, pandemic uncertainty, geopolitical risk uncertainty
    JEL: C51 C58 G1
    Date: 2023–01
  12. By: Taipov Mikhail (Department of Economics, Lomonosov Moscow State University)
    Abstract: Net Neutrality imposes many restrictions on the work of Internet service providers, which can significantly affect their profits and the welfare of other economic agents in the ISP market. This article analyzes the following rules established by the Net Neutrality: “zero price” rule and the prohibition of exclusive deals between ISPs and content providers. To study the implications of Net Neutrality, a game-theoretic model of the ISP market is being created, the unique feature of which is that content providers are divided into two following types: one large content provider that creates a large cross-network effect for consumers and is able to strike exclusive deals with ISPs in the absence of Net Neutrality; and many small content providers that create a small crossnetwork effect and aren’t able to influence the prices set by ISPs. This model allowed me to draw the following conclusions about the effects of Net Neutrality: Net Neutrality increases the profits of Internet service providers and reduces the profits of a large content provider; increases the total social welfare if a large content provider joins both ISPs in the absence of Net Neutrality. The impact of net neutrality on consumer surplus and profits of small content providers depends on the exclusivity of a large content provider in the absence of net neutrality.
    Keywords: net Neutrality, content providers, exclusivity, platforms, social welfare
    JEL: C65 C79
    Date: 2023–05
  13. By: Chao Gu; Cyril Monnet; Ed Nosal; Randall Wright
    Abstract: Are financial intermediaries—in particular, banks—inherently unstable or fragile, and if so, why? We address this question theoretically by analyzing whether model economies with financial intermediation are more prone than those without it to multiple, cyclic, or stochastic equilibria. We consider several formalizations: insurance-based banking, models with reputational considerations, those with fixed costs and delegated investment, and those where bank liabilities serve as payment instruments. Importantly for the issue at hand, in each case banking arrangements arise endogenously. While the economics and mathematics differ across specifications, they all predict that financial intermediation engenders instability in a precise sense.
    Keywords: banking; financial intermediation; instability; volatility
    JEL: D02 E02 E44 G21
    Date: 2023–02–13
  14. By: Leinauer, Christina; Körner, Marc-Fabian; Strüker, Jens
    Abstract: As the decarbonization of industry has become an increasing priority, so has the need for emissions data and the requirement for cross-sector emissions reporting. What challenges and opportunities does industry face? How can digital solutions help leverage the potential of climate-friendly products in emerging climate-neutral lead markets? Based on interviews with experts from various industries, our study with Fraunhofer-FIT "Towards net 0: Digital CO2 proofs for the sustainable transformation of the European economy" presents hurdles and digital solutions as well as conclusions for policy makers. The study comes to the conclusion that granular, secure CO2 proofs on the one hand offer a possibility to manage the increasing effort for the collection, processing and provision of CO2 information more efficiently and at the same time can accelerate and simplify the transition to climate-neutral production processes and products.
    Date: 2023
  15. By: Julia Fonseca (University of Illinois at Urbana-Champaign); Adrien Matray (Princeton University, NBER, and CEPR)
    Abstract: We study a financial inclusion policy targeting Brazilian cities with low bank branch coverage using data on the universe of employees from 2000–2014. The policy leads to bank entry and to similar increases in both deposits and lending. It also fosters entrepreneurship, employment, and wage growth, especially for cities initially in banking deserts. These gains are not shared equally and instead increase with workers’ education, implying a substantial increase in wage inequality. The changes in inequality are concentrated in cities where the initial supply of skilled workers is low, indicating that talent scarcity can drive how financial development affects inequality.
    Keywords: Brazil, Financial Inclusion Policy, Wage Inequality, Banks
    JEL: D63 E24 E58 G21 J30
    Date: 2022–09
  16. By: Sabri Boubaker (Métis Lab EM Normandie - EM Normandie - École de Management de Normandie, VNU - Vietnam National University [Hanoï]); Zhenya Liu (CERGAM - Centre d'Études et de Recherche en Gestion d'Aix-Marseille - AMU - Aix Marseille Université - UTLN - Université de Toulon, Renmin University of China); Ling Zhai (Renmin University of China)
    Abstract: A vast quantity of high-dimensional, unstructured textual news data is produced every day, more than two decades after the launch of the global Internet. These big data have a significant influence on the way that decisions are made in business and finance, due to the cost, scalability, and transparency benefits that they bring. However, limited studies have fully exploited big data to analyze changes in news diversity or to predict financial market movements, specifically stock market crashes. Based on modern methods of textual analysis, this paper investigates the relationship between news diversity and financial market crashes by applying the change-point detection approach. The empirical analysis shows that (1) big data is a relatively new and useful tool for assessing financial market movements, (2) there is a relationship between news diversity and financial market movements. News diversity tends to decline when the market falls and volatility soars, and increases when the market is on an upward trend and in recovery, and (3) the multiple structural breaks detected improve the ability to forecast stock price movements. Therefore, changes to news diversity, embedded in big data, can be a useful indicator of financial market crashes and recoveries.
    Keywords: Big data, News diversity, Textual analysis, Change-point, Financial crisis
    Date: 2021–07
  17. By: Claire Borsenberger (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Helmuth Cremer (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Denis Joram (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Jean-Marie Lozachmeur (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Estelle Malavolti (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)
    Date: 2023–05–04
  18. By: Wu, Jialin; Liu, Hongbo; ZHENG, Chen
    Abstract: This study explores the potential of tryvertising in accommodations using an experimental research design. By building a moderated mediation model, this research offers theoretical underpinnings to comprehend how and when tryvertising works in peer-to-peer accommodations. The results demonstrate that tryvertising is more effective in Airbnb than in a hotel context, and more effective in an entire property than a private room in Airbnb. Different accommodation settings represent different levels of territoriality, with higher territoriality leading to higher psychological ownership, and hence higher purchase intentions towards tryvertised products. Such effects are moderated by impermanence which is a threat to psychological ownership. This research suggests avenues marketers/hosts can optimize tryvertising effectiveness in peer-to-peer accommodations, by increasing guests’ perceived territoriality and psychological ownership.
    Date: 2023–04–17
  19. By: Philémon Poux (CRED - Centre de Recherche en Economie et Droit - Université Paris-Panthéon-Assas, CERSA - Centre d'Études et de Recherches de Sciences Administratives et Politiques - CNRS - Centre National de la Recherche Scientifique - Institut Cujas - Université Paris-Panthéon-Assas, ENPC - École des Ponts ParisTech)
    Abstract: Following an increasingly large corpus of literature championing blockchain-based voting systems and, in particular, Liquid Democracy, this paper proposes a theoretical analysis based on public economics on the issue completing the current literature which focuses more on technical issues. Differentiating between Liquid Democracy as a voting tool and as a new form of democracy, I argue that the former offers the opportunity to vote for more inclusive decisions and to better reflect voters's intensity of preferences delegation and logrolling. However, the latter does not benefit from these positive outcomes as it faces major limitations at large scales because it fails to provide a framework for bundling and for legislative work. In this paper, I conclude that reaches the conclusion that, for now, Liquid Democracy is more suited to local democracy or small-scale homogeneous groups than to larger-scale systems (such as national constitutions). Along the paper, I discuss blockchain-based examples of Liquid Democracy to illustrate the analysis and link it with recent literature.
    Date: 2023–04–12
  20. By: Arapi-Gjini, Arjola
    Keywords: Community/Rural/Urban Development, Food Security and Poverty, Labor and Human Capital
    Date: 2022
  21. By: Xu, Chenzi (Stanford U); Yang, He (Harvard U)
    Abstract: Privately issued money often bears devaluation risk that create monetary transaction frictions. We evaluate the real effects of supplying a new type of safe money in the historical context of the US in 1863. We instrument for the change in monetary frictions locally using regulatory capital requirements and measure the degree safe money access with a market access approach derived from general equilibrium trade theory. Lowering monetary transaction costs increased traded goods production and spurred structural transformation with more manufacturing output, employment, and urban population. The growth in manufacturing was driven by employment and inputs rather than capital investment.
    JEL: E42 E44 E51 F14 G21 N11 N21
    Date: 2022–09
  22. By: Alejandro Bernales; Marcela Valenzuela; Ilknur Zer
    Abstract: Motivated by cognitive theories verifying that investors have limited capacity to process information, we study the effects of information overload on stock market dynamics. We construct an information overload index using textual analysis tools on daily data from The New York Times since 1885. We structure our empirical analysis around a discrete-time learning model, which links information overload with asset prices and trading volume when investors are attention constrained. We find that our index is associated with lower trading volume and predicts higher market returns for up to 18 months, even after controlling for standard predictors and other news-based measures. Information overload also affects the cross-section of stock returns: Investors require higher risk premia to hold small, high beta, high volatile, and unprofitable stocks. Such findings are consistent with theories emphasizing that information overload increases information and estimation risk and deteriorates investors' decision accuracy amid their limited attention.
    Keywords: Limited attention; Dispersion; Sentiment; Predicting returns; Behavioral biases
    JEL: G40 G41 G12 G14
    Date: 2023–03–09

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