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on Payment Systems and Financial Technology |
| By: | Romain Baeriswyl; Kene Boun My; Camille Cornand |
| Abstract: | In a monetary system in which risk-free and risky money coexist, Gresham's law predicts that people will prefer to hoard risk-free money as a store of value and spend risky money as a medium of exchange. Establishing a payment system on the basis of risk-free money, such as a retail CBDC, while maintaining the fractional reserve banking system in place poses numerous challenges. In a laboratory experiment, we demonstrate that when the holding of risk-free money is unrestricted, people hold and pay with it extensively. However, when the ability to hold risk-free money is limited by a ceiling or an unattractive interest rate, people tend to hoard risk-free money and use risky money for payments. |
| Keywords: | Central Bank Digital Currency, Gresham's law, Laboratory experiment |
| JEL: | E52 E58 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:snb:snbwpa:2026-03 |
| By: | Emilio Barucci (Politecnico di Milano); Andrea Gurgone (University of Oxford); Giulia Iori (Ca’ Foscari University of Venice; University of London); Michele Azzone (Politecnico di Milano) |
| Abstract: | We analyse financial stability and welfare impacts associated with the introduction of a Central Bank Digital Currency (CBDC) in a macroeconomic agent-based model. The model considers firms, banks, and households interacting on labour, goods, credit, and interbank markets. Households move their liquidity from deposits to CBDC based on the perceived riskiness of their banks. We find that the introduction of CBDC exacerbates bank-runs and may lead to financial instability phenomena. The effect can be changed by introducing a limit on CBDC holdings. The adoption of CBDC has little effect on macroeconomic variables but the interest rate on loans to firms goes up and credit goes down in a limited way. CBDC leads to a redistribution of wealth from firms and banks to households with a higher bank default rate. CBDC may have negative welfare effects, but a bound on holding enables a welfare improvement. |
| Keywords: | Agent-Based Model, Central Bank Digital Currency, Financial Stability, Bank-run |
| JEL: | E42 E44 E47 E52 E58 G01 G21 G28 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ven:wpaper:2026:01 |
| By: | Joe Cannataci; Benjamin Fehrensen; Mikolai G\"utschow; \"Ozg\"ur Kesim; Bernd Lucke |
| Abstract: | The European Central Bank (ECB) is working on the "digital euro", an envisioned retail central bank digital currency for the Euro area. In this article, we take a closer look at the "digital euro FAQ", which provides answers to 26 frequently asked questions about the digital euro, and other published documents by the ECB on the topic. We question the provided answers based on our analysis of the current design in terms of privacy, technical feasibility, risks, costs and utility. In particular, we discuss the following key findings: (KF1) Central monitoring of all online digital euro transactions by the ECB threatens privacy even more than contemporary digital payment methods with segregated account databases. (KF2) The ECB's envisioned concept of a secure offline version of the digital euro offering full anonymity is in strong conflict with the actual history of hardware security breaches and mathematical evidence against it. (KF3) The legal and financial liabilities for the various parties involved remain unclear. (KF4) The design lacks well-specified economic incentives for operators as well as a discussion of its economic impact on merchants. (KF5) The ECB fails to identify tangible benefits the digital euro would create for society, in particular given that the online component of the proposed infrastructure mainly duplicates existing payment systems. (KF6) The design process has been exclusionary, with critical decisions being set in stone before public consultations. Alternative and open design ideas have not even been discussed by the ECB. |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2601.18644 |
| By: | Ashlesha Hota; Shashwat Kumar; Daman Deep Singh; Abolfazl Asudeh; Palash Dey; Abhijnan Chakraborty |
| Abstract: | The concentration of digital payment transactions in just two UPI apps like PhonePe and Google Pay has raised concerns of duopoly in India s digital financial ecosystem. To address this, the National Payments Corporation of India (NPCI) has mandated that no single UPI app should exceed 30 percent of total transaction volume. Enforcing this cap, however, poses a significant computational challenge: how to redistribute user transactions across apps without causing widespread user inconvenience while maintaining capacity limits? In this paper, we formalize this problem as the Minimum Edge Activation Flow (MEAF) problem on a bipartite network of users and apps, where activating an edge corresponds to a new app installation. The objective is to ensure a feasible flow respecting app capacities while minimizing additional activations. We further prove that Minimum Edge Activation Flow is NP-Complete. To address the computational challenge, we propose scalable heuristics, named Decoupled Two-Stage Allocation Strategy (DTAS), that exploit flow structure and capacity reuse. Experiments on large semi-synthetic transaction network data show that DTAS finds solutions close to the optimal ILP within seconds, offering a fast and practical way to enforce transaction caps fairly and efficiently. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2601.02369 |
| By: | Orrenius, Johan (Research Institute of Industrial Economics (IFN)) |
| Abstract: | I study the digital market for attention in a freemium mobile game where users choose between paying with money or by watching 30-second video ads. Using unique event-level data, I estimate consumers’ supply elasticity of attention. In the aggregate, a one percent higher price increases the share of users watching videos as a payment by 2.2 percent. A substantial part is due to individual heterogeneity in tastes. When accounting for individual heterogeneity, the elasticity reduces to 0.5. The individual elasticities vary throughout the day, peaking in the evening. Complementing the unique data on each play made by users, I use data on the revenue to the gaming company from showing ads. The data is on an individual and daily level, allowing me to match the individual supply elasticity with the revenue from showing ads to the same individual. I find advertisers pay more to show ads to individuals who are less likely to use ads as their payment method. The effect is stronger among Android users than iOS users. |
| Keywords: | Attention; Mobile games; Value of time |
| JEL: | D12 D83 J22 L82 |
| Date: | 2026–01–12 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:iuiwop:1550 |
| By: | Bianca He; Lauren Mostrom; Amir Sufi |
| Abstract: | Financial Technology (“FinTech”) firms invest significantly more in customer capital relative to traditional financial firms, and such investment builds valuable customer capital. Higher investment by FinTech firms is not accounted for by sectoral focus or differences in firm age. Reasons for higher customer capital investment are explored, including the need to build trust with customers, the focus on downstream segments of the financial marketplace, the operation of platform-based business models, and a heavier reliance on valuable customer data. |
| JEL: | G23 M3 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34710 |
| By: | Mr. Adolfo Barajas; Kensuke Sakamoto; Rasool Zandvakil |
| Abstract: | Economic benefits of financial inclusion, meaning a broadening access of the population to financial services, have been studied extensively, but less is known about its potential effects on financial stability. We explore the complementarity between credit booms and episodes of rapid expansion of the borrower base, or “credit inclusion, ” and find that the confluence of both helps to predict future financial distress. Rapid credit inclusion on its own does not usually portend future instability, but it is much more likely to do so when combined with a credit boom. These results can help to enhance the policymaker’s early warning toolbox. |
| Keywords: | Financial inclusion; Credit booms; Financial stability; Early warning indicators |
| Date: | 2026–01–16 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/008 |
| By: | Tingyi Lin |
| Abstract: | Do vulnerabilities in Decentralized Finance (DeFi) destabilize traditional short-term funding markets? While the prevailing "Contagion Hypothesis" posits that the liquidation of stablecoin reserves triggers fire-sale spirals that transmit distress to traditional markets , we document a robust "Flight-to-Quality" effect to the contrary. In the wake of major DeFi exploits, spreads on 3-month AA-rated commercial paper (CP) exhibit a paradoxical narrowing. We identify a "liquidity recycling" mechanism driving this outcome: capital fleeing DeFi protocols is re-intermediated into the traditional financial system via Prime Money Market Funds (MMFs) , where strict regulatory constraints (e.g., SEC Rule 2a-7) compel these funds to purchase high-quality paper. Our estimates indicate that this institutional demand shock quantitatively overwhelms the supply shock driven by stablecoin issuer redemptions. Rather than acting as vectors of financial contagion , these crypto native shocks serve as an inadvertent "safety valve" in segmented markets , providing transient liquidity support and effectively subsidizing borrowing costs for high-grade issuers in the real economy. |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2601.08263 |
| By: | Hamoon Soleimani |
| Abstract: | Since its inception, Bitcoin has been positioned as a revolutionary alternative to national currencies, attracting immense public and academic interest. This paper presents a critical evaluation of this claim, suggesting that Bitcoin faces significant structural barriers to qualifying as money. It synthesizes critiques from two distinct schools of economic thought - Post-Keynesianism and the Austrian School - and validates their conclusions with rigorous technical analysis. From a Post-Keynesian perspective, it is argued that Bitcoin does not function as money because it is not a debt-based IOU and fails to exhibit the essential properties required for a stable monetary asset (Vianna, 2021). Concurrently, from an Austrian viewpoint, it is shown to be inconsistent with a strict interpretation of Mises's Regression Theorem, as it lacks prior non-monetary value and has not achieved the status of the most saleable commodity (Peniaz and Kavaliou, 2024). These theoretical arguments are then supported by an empirical analysis of Bitcoin's extreme volatility, hard-coded scalability limits, fragile market structure, and insecure long-term economic design. The paper concludes that Bitcoin is more accurately characterized as a novel speculative asset whose primary legacy may be the technological innovation it has spurred, rather than its viability as a monetary standard. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2512.07840 |
| By: | Matthew Brigida |
| Abstract: | We estimate risk premia in the cross-section of cryptocurrency returns using the Giglio-Xiu (2021) three-pass approach, allowing for omitted latent factors alongside observed stock-market and crypto-market factors. Using weekly data on a broad universe of large cryptocurrencies, we find that crypto expected returns load on both crypto-specific factors and selected equity-industry factors associated with technology and profitability, consistent with increased integration between crypto and traditional markets. In addition, we study non-tradable state variables capturing investor sentiment (Fear and Greed), speculative rotation (Altcoin Season Index), and security shocks (hacked value scaled by market capitalization), which are new to the literature. Relative to conventional Fama-MacBeth estimates, the latent-factor approach yields materially different premia for key factors, highlighting the importance of controlling for unobserved risks in crypto asset pricing. |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2601.07664 |
| By: | Khalid, Usman; Ali, Amjad; Audi, Marc |
| Abstract: | This paper examines the impact of mobile payments, financial literacy, and access to formal financial systems on borrowing practices among individuals residing in the European Union. It utilises data from the 2023 Flash Eurobarometer 525 and predicts the probability of consumer loan ownership through a logistic regression model. The analysis shows that borrowers generally possess higher financial literacy, suggesting an empowered approach to managing debt. Surprisingly, users of digital financial services tend to borrow less, potentially indicating that they prefer alternative tools or manage their finances more prudently. Moreover, possessing financial products such as savings accounts, mortgages, and insurance increases the likelihood of borrowing, whereas access to long-term investment products like pensions is linked with lower borrowing levels. These results suggest that borrowing decisions are partially influenced by access to financial instruments, individual financial knowledge, attitudes towards digital finance, and targeted policies emphasising education alongside comprehensive financial strategies. |
| Keywords: | Consumer Financial Behaviour, Financial Literacy, Borrowing Patterns, Digital Finance, European Union |
| JEL: | G2 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:127308 |
| By: | Rui Xu |
| Abstract: | The rise of fintech lenders has intensified competition in the banking industry. This study utilizes Brazilian bank-level data to examine the causal impact of increased competition on commercial banks’ lending rates and profitability. Employing a bank-specific Bartik exposure, constructed from comprehensive credit and balance sheet information across all Brazilian banks and fintech lenders, the analysis reveals that commercial banks sustained their loan portfolios primarily by lowering lending rates. Specifically, a one standard deviation increase in fintech competition exposure corresponds to a 3.7 percentage point reduction in average lending rates at commercial banks. Banks’ operational efficiency increased due to heightened competition, but their net interest margins narrowed, adversely affecting overall profitability. Between 2018 and 2024, fintech competition is estimated to have lowered banks’ average lending rates by 2.7 percentage points and reduced traditional banks' net interest margins by 0.9 percentage points. |
| Keywords: | Brazil; fintech lenders; digital banks; commercial banks; competition; lending rates; profitability; operational efficiency. |
| Date: | 2026–01–16 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/007 |
| By: | Hamoon Soleimani |
| Abstract: | Bitcoin operates as a macroeconomic paradox: it combines a strictly predetermined, inelastic monetary issuance schedule with a stochastic, highly elastic demand for scarce block space. This paper empirically validates the Endogenous Constraint Hypothesis, positing that protocol-level throughput limits generate a non-linear negative feedback loop between network friction and base-layer monetary velocity. Using a verified Transaction Cost Index (TCI) derived from Blockchain.com on-chain data and Hansen's (2000) threshold regression, we identify a definitive structural break at the 90th percentile of friction (TCI ~ 1.63). The analysis reveals a bifurcation in network utility: while the network exhibits robust velocity growth of +15.44% during normal regimes, this collapses to +6.06% during shock regimes, yielding a statistically significant Net Utility Contraction of -9.39% (p = 0.012). Crucially, Instrumental Variable (IV) tests utilizing Hashrate Variation as a supply-side instrument fail to detect a significant relationship in a linear specification (p=0.196), confirming that the velocity constraint is strictly a regime-switching phenomenon rather than a continuous linear function. Furthermore, we document a "Crypto Multiplier" inversion: high friction correlates with a +8.03% increase in capital concentration per entity, suggesting that congestion forces a substitution from active velocity to speculative hoarding. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2512.07886 |
| By: | Shiyu Zhang; Zining Wang; Jin Zheng; John Cartlidge |
| Abstract: | Systemic risk refers to the overall vulnerability arising from the high degree of interconnectedness and interdependence within the financial system. In the rapidly developing decentralized finance (DeFi) ecosystem, numerous studies have analyzed systemic risk through specific channels such as liquidity pressures, leverage mechanisms, smart contract risks, and historical risk events. However, these studies are mostly event-driven or focused on isolated risk channels, paying limited attention to the structural dimension of systemic risk. Overall, this study provides a unified quantitative framework for ecosystem-level analysis and continuous monitoring of systemic risk in DeFi. From a network-based perspective, this paper proposes the DeFi Correlation Fragility Indicator (CFI), constructed from time-varying correlation networks at the protocol category level. The CFI captures ecosystem-wide structural fragility associated with correlation concentration and increasing synchronicity. Furthermore, we define a Risk Contribution Score (RCS) to quantify the marginal contribution of different protocol types to overall systemic risk. By combining the CFI and RCS, the framework enables both the tracking of time-varying systemic risk and identification of structurally important functional modules in risk accumulation and amplification. |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2601.08540 |
| By: | Cardoso, Eliana A. |
| Keywords: | Financial Economics |
| URL: | https://d.repec.org/n?u=RePEc:ags:cladsp:263594 |
| By: | Ekleen Kaur |
| Abstract: | The integration of cryptocurrencies into institutional portfolios necessitates the adoption of robust risk modeling frameworks. This study is a part of a series of subsequent works to fine-tune model risk analysis for cryptocurrencies. Through this first research work, we establish a foundational benchmark by applying the traditional industry-standard Geometric Brownian Motion (GBM) model. Popularly used for non-crypto financial assets, GBM assumes Lognormal return distributions for a multi-asset cryptocurrency portfolio (XRP, SOL, ADA). This work utilizes Maximum Likelihood Estimation and a correlated Monte Carlo Simulation incorporating the Cholesky decomposition of historical covariance. We present our stock portfolio model as a Minimum Variance Portfolio (MVP). We observe the model's structural shift within the heavy-tailed, non-Gaussian cryptocurrency environment. The results reveal limitations of the Lognormal assumption: the calculated Value-at-Risk at the 5% confidence level over the one-year horizon. For baselining our results, we also present a holistic comparative analysis with an equity portfolio (AAPL, TSLA, NVDA), demonstrating a significantly lower failure rate. This performance provides conclusive evidence that the GBM model is fundamentally the perfect benchmark for our subsequent works. Results from this novel work will be an indicator for the success criteria in our future model for crypto risk management, rigorously motivating the development and application of advanced models. |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2601.14272 |
| By: | Naeem, Arslan |
| Abstract: | The rapid expansion of e-commerce has transformed consumer purchasing behaviour in developing economies; however, concerns related to perceived risk and trust continue to hinder the widespread adoption of online shopping. This study examines the influence of perceived risk factors on online shopping behaviour in Pakistan within a post-COVID e-commerce context. Drawing on the Theory of Planned Behavior and perceived risk theory, the study investigates the effects of financial risk, product risk, convenience risk, non-delivery risk, and return policy risk on consumers’ online shopping behaviour. A quantitative research design was employed using primary survey data collected in 2021 from university students and working professionals in major urban centres of Pakistan. Responses were manually screened for completeness and analysed using descriptive statistics, chi-square tests, and multiple regression analysis. The findings indicate that financial risk and non-delivery risk exert the strongest negative influence on online shopping behaviour, while product risk and convenience risk also significantly affect consumers’ purchasing decisions. Return policy risk demonstrates a weaker but still relevant effect. The study contributes empirical evidence from a developing-country context and highlights the continued importance of perceived risk in shaping online consumer behaviour in post-pandemic digital markets. The findings offer practical implications for e-commerce platforms, logistics providers, and policymakers seeking to strengthen consumer trust and promote sustainable growth in Pakistan’s digital economy. |
| Date: | 2026–01–09 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:bf3ze_v1 |
| By: | Bohan Zhang |
| Abstract: | This paper develops a theoretical model of platform competition where user-generated content (UGC) quality arises endogenously from the composition of the user base. Users differ in their relative preferences for content quality and network size, and platforms compete by choosing advertising intensity, which affects user utility through perceived quality. We characterize equilibrium platform choice, identifying conditions under which equilibria are stable. The model captures how platforms' strategic decisions shape user allocation and market outcomes, including coexistence and dominance scenarios. We consider two types of equilibria in advertising levels: Nash equilibria and Stackelberg equilibria, and discuss the industry and policy implications of our results. |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2512.08876 |
| By: | Bastien Baude; Vincent Danos; Hamza El Khalloufi |
| Abstract: | We develop a mathematical framework to optimize leveraged staking ("loopy") strategies in Decentralized Finance (DeFi), in which a staked asset is supplied as collateral, the underlying is borrowed and re-staked, and the loop can be repeated across multiple lending markets. Exploiting the fact that DeFi borrow rates are deterministic functions of pool utilization, we reduce the multi-market problem to a convex allocation over market exposures and obtain closed-form solutions under three interest-rate models: linear, kinked, and adaptive (Morpho's AdaptiveCurveIRM). The framework incorporates market-specific leverage limits, utilization-dependent borrowing costs, and transaction fees. Backtests on the Ethereum and Base blockchains using the largest Morpho wstETH/WETH markets (from January 1 to April 1, 2025) show that rebalanced leveraged positions can reach up to 6.2% APY versus 3.1% for unleveraged staking, with strong dependence on position size and rebalancing frequency. Our results provide a mathematical basis for transparent, automated DeFi portfolio optimization. |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2601.14005 |
| By: | Mr. Marco Gross; Richard Senner |
| Abstract: | Fiat-backed stablecoins are expanding, and their issuers may attain systemic relevance as reserve portfolios grow and as they become increasingly intertwined with financial markets. This paper analyzes the resulting risks and the design choices that can mitigate them. A detailed financial-economics discussion forms the core of the paper. It is paired with a model that captures the feedback loop between a systemic stablecoin and financial markets: redemptions deplete reserves, may prompt asset sales, depress bond market prices, thereby erode a stablecoin issuer’s solvency, and in turn amplify further redemptions. The model links design dials—capital and liquidity buffers, reserve composition, redemption gates, and others—to outcomes such as run frequency, fire sale intensity, and bond market volatility. The economics discussion and model analysis conclude that robust prudential design can substantially stabilize stablecoins and their surrounding market environment. |
| Keywords: | Stablecoins; systemic liquidity; global financial stability; sovereign-stablecoin nexus |
| Date: | 2026–01–16 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/005 |
| By: | Habib Badawi; Mohamed Hani; Taufikin Taufikin |
| Abstract: | Financial markets often appear chaotic, yet ranges are rarely accidental. They emerge from structured interactions between market context and capital conditions. The four-hour timeframe provides a critical lens for observing this equilibrium zone where institutional positioning, leveraged exposure, and liquidity management converge. Funding mechanisms, especially in perpetual futures, act as disciplinary forces that regulate trader behavior, impose economic costs, and shape directional commitment. When funding aligns with the prevailing 4H context, price expansion becomes possible; when it diverges, compression and range-bound behavior dominate. Ranges therefore represent controlled balance rather than indecision, reflecting strategic positioning by informed participants. Understanding how 4H context and funding operate as market governors is essential for interpreting cryptocurrency price action as a rational, power-mediated process. |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2601.06084 |
| By: | Murad Farzulla |
| Abstract: | Cryptocurrency projects articulate value propositions through whitepapers, making claims about functionality and technical capabilities. This study investigates whether these narratives align with observed market behavior. We construct a pipeline combining zero-shot NLP classification (BART-MNLI) with CP tensor decomposition to compare three spaces: (1) a claims matrix from 24 whitepapers across 10 semantic categories, (2) market statistics for 49 assets over two years of hourly data, and (3) latent factors from tensor decomposition (rank 2, 92.45% variance explained). Using Procrustes rotation and Tucker's congruence coefficient, we test alignment across 23 common entities. Results show weak alignment: claims-statistics (phi=0.341, p=0.332), claims-factors (phi=0.077, p=0.747), and statistics-factors (phi=0.197, p =0.70) can be confidently rejected. Implications for narrative economics and investment analysis are discussed. |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2601.20336 |
| By: | Dalziel, Paul |
| Abstract: | This paper introduces a finance channel for monetary policy. Following Black (1970) there is no money commodity in the paper's model. Instead, the medium of exchange is bank deposits supplied by the financial system in response to optimal rational expectations decisions by firms about financing investment in new capital assets, and demanded by households as part of their optimized financial portfolio of accumulated savings. The model demonstrates how central banks maintain price stability through changes in base interest rates (the Wicksell monetary policy rule) which influence the debt financing decisions of firms. |
| Keywords: | Financial Economics |
| URL: | https://d.repec.org/n?u=RePEc:ags:canzdp:263800 |
| By: | Kim, Yunjin; lfft, Jennifer |
| Keywords: | Agricultural Finance, Farm Management |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ags:aaea25:360693 |