|
on Payment Systems and Financial Technology |
| By: | Trautmann, Simon; Hellenkamp, Detlef |
| Abstract: | The digital euro is intended to preserve access to public central bank money in an increasingly digital payments landscape while strengthening European payments sovereignty. Its potential success, however, will not depend on institutional legitimacy alone. The decisive question is whether it can offer consumers a discernible advantage over established payment instruments and be embedded in a viable intermediated model. This working paper therefore examines the design requirements under which a digital euro could generate tangible everyday utility while preserving the intermediation role of commercial banks. Methodologically, the analysis draws on recent primary sources issued by European institutions and central banks, relevant academic literature and selected international CBDC case studies. The findings indicate that user-friendliness, privacy, online and offline functionality, a sufficiently broad acceptance network and robust integration into existing payment infrastructures are particularly important. At the same time, the digital euro gives rise to tensions between attractiveness and financial stability, privacy and regulatory traceability, and public infrastructure and private-sector innovation. Holding limits, waterfall and reverse-waterfall mechanisms, and an appropriately calibrated remuneration model may help to mitigate these tensions. The digital euro can therefore contribute to European payments sovereignty, provided that it is designed as a user-oriented public infrastructure and underpinned by the functional and economically viable involvement of commercial banks. |
| Keywords: | Digital euro, Retail central bank digital currency (CBDC), European payments sovereignty, Consumer adoption, Bank intermediation, Payment systems, Financial stability, Offline payments |
| JEL: | E42 E58 G21 G28 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:esprep:343664 |
| By: | Usama Abdul Rauf (Pakistan Institute of Development Economics); Rafia Ali (Pakistan Institute of Development Economics) |
| Abstract: | Pakistan's large shadow economy remains key challenge to tax collection, quality of governance, and slow economic growth. Formalizing financial inclusion offers a strategic and evidence based trail by increasing trustful dependence on official, transparent and traceable system to shrink the size of shadow economy. This knowledge brief highlights the development of financial inclusion from 2008 to 2025. It also defines the underlying causes of the shadow economy and financial inclusion and the empirical insights by financial services contribute to the transfer of economic activities into the formal economy. Pakistan's still suffers from gaps across gender based exclusion, regional and income disparities despite a significant progress in branchless banking and digital payment platforms. Thus, cash remains a main medium of exchange leading to tax avoidance and informal economic activity. This brief suggest that reduction in shadow economy needs inclusive access and continuous usage of financial services for Pakistan's citizens. Therefore, with organized reforms, financial inclusion is a powerful tool to reduce informality and it will support long-term sustainable development. 1.Introduction Pakistan, the world's fifth most populous country and second populous in South Asia, still operating with a large shadow economy, basically the economy outside the official system. In 2024, a joint study conducted by the ILO and the SMEDA had estimated the shadow economy in Pakistan to be approximately 35-40% of the GDP, estimated at about US$457 billion. About 6% of the GDP is unreported annually. This weakens the inclusive growth and lowers government revenue. A significant number of traders do not register their business or workers and large number of workers remain unbanked. The high cash transactions enhances inequality and creates financial challenges for the country. Therefore, connecting individuals and businesses into documented economy through digital transactions, regi... |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:pid:kbrief:2026:143 |
| By: | Liu, Jiageng; Makarov, Igor; Schoar, Antoinette |
| Abstract: | We examine the dramatic collapse of the Terra blockchain in May 2022. Using granular blockchain data, we show that the run resulted from the interaction of three economic forces: subsidized money creation, real-time observability of transactions, and investor concentration. The early success of Terra’s algorithmic stablecoin, UST, was fueled by highly subsidized deposit rates, which attracted many investors but failed to engage them meaningfully with other services. Blockchain transparency allowed investors to observe Terra’s worsening fundamentals and monitor each other’s exits in real time. Larger and sophisticated investors reacted faster to adverse signals and served as catalysts for the run. These findings challenge the idea that blockchain transparency levels the playing field and highlight how greater observability and concentration can amplify financial fragility. Our results contribute to the understanding of the limits of private money creation and the dynamics of runs in fully digital financial systems. |
| Keywords: | cryptocurrencies;DeFi;financial fragility;financial runs |
| JEL: | D82 D84 G23 |
| Date: | 2026–10–31 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:137575 |
| By: | Louis-Alexandre Bayol (Banque de France) |
| Abstract: | Using Google Search Volumes (GSV), I develop the GSV-based Digitization of Payments Index (GSVDPI), a multidimensional metric built via machine and deep learning models, to track the evolution of digital payments. This index allows for quantifying the changes in the use of digital payment instruments (card, contactless, mobile, and others) in France and comparison with other European countries like Germany, Italy, and Spain. Compared with standard payment digitization statistics published by institutions like the European Central Bank (ECB), the GSVDPI offers distinctly valuable and real-time insights. Consequently, the GSVDPI accounts for the complex dynamics and policy expectations of the digitization process, which are typically overlooked by univariate metrics. I contribute to the literature by identifying the economic mechanisms driving digital payment adoption and examining its macroeconomic effects through a cross-country analysis. I show that incorporating the GSVDPI into the explanatory variables of a multivariate cash demand framework significantly enhances model performance, thereby offering deeper insights into future payment trends. |
| URL: | https://d.repec.org/n?u=RePEc:boc:carp26:11 |
| By: | Michael D. Bordo; Carolyn Wilkins |
| Abstract: | This paper uses the history of private money to assess the conditions under which stablecoins could function safely at scale and what their growth may imply for U.S. monetary power. Historical systems of private money in the United Kingdom, the United States, Canada, Sweden, and Switzerland show that par circulation depended on institutional arrangements rather than payment technology. Drawing on the monetary history of private money, convertibility, and international currencies, the paper identifies five foundations for scalable private money: credible convertibility, high-quality and transparent backing, a uniform regulatory perimeter, par clearing infrastructure, and credible crisis management and loss allocation. Stablecoins may improve settlement speed, programmability, and cross-border access, but they do not remove these requirements. Applying this framework to contemporary stablecoins and the GENIUS Act, the paper finds that the Act addresses several of these foundations more fully than others, with crisis management and cross-border coordination less fully developed. Dollar stablecoins could extend the reach of dollar settlement, but historical experience reviewed here suggests that whether this strengthens the dollar system depends both on the institutional framework supporting stablecoins and on the deeper foundations of U.S. monetary dominance: confidence in U.S. institutions, fiscal capacity, monetary credibility, and the rule of law. |
| JEL: | E42 E44 G15 N20 N40 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35768 |
| By: | Antonia Manzini (Bank of Italy); Diego Scalise (Bank of Italy) |
| Abstract: | Technological innovation has profoundly transformed financial services. This paper examines the diffusion of technology-intensive firms operating in the financial sector (fintech) and the pivotal role of venture capital in supporting their development. The analysis reveals an ecosystem predominantly consisting of small fintech firms, which cluster in the financial centres of countries with more developed capital markets. These locations are home, in particular, to business-to-business (B2B) firms, which frequently develop digital solutions for financial institutions. In this environment, incumbent financial intermediaries become the natural acquirers of the most promising fintech start-ups, integrating their technologies and capabilities into their value chains. Access to diversified sources of finance is a key determinant of these firms' growth. Venture capital acts as a catalyst by fostering strategic partnerships and facilitating the integration of innovative technologies, thereby contributing to the transformation of traditional financial intermediation. The distribution of fintech firms and the evolution of their financing cycle portray a sector undergoing a transition from an initial phase of rapid expansion to one of gradual consolidation. |
| Keywords: | fintech concentration, fintech venture capital |
| JEL: | G15 G24 G34 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:bdi:opques:qef_1055_26 |
| By: | Michael King (Department of Economics, Trinity College Dublin); Paolina Medina (University of Houston); Roland Umanan (Department of Economics, Trinity College Dublin, University of Dublin); Ray Charles Howard (University of Virginia) |
| Abstract: | Cash remains a dominant payment method in many markets despite the widespread availability of digital alternatives such as debit cards, creating costs for consumers, firms, and governments. This research examines which interventions most effectively increase debit‐card use, how effectiveness varies with incentive form and amount, and whether average effects conceal meaningful differences across customers. A large‐scale randomized field experiment with approximately 1.5 million customers of a Mexican bank tests cash and gift‐card incentives of 60 and 300 MXN, repeated benefit‐focused nudges, and combinations of nudges with cash incentives. Estimated treatment effects on debit‐card transaction frequency and spending range from approximately 0% to 5%, with larger incentives producing less‐than‐proportional gains in transaction frequency and incentive‐form effects varying across outcomes and incentive amounts. Causal‐forest estimates show substantial treatment‐effect heterogeneity: for example, the effect of the 300 MXN cash incentive is concentrated among customers with relatively high baseline debit‐card use, while some near‐zero average effects mask offsetting positive and negative subgroup responses. Nudges have small nonsignificant effects alone and no detectable incremental effect when combined with cash incentives. These findings show that effective payment‐activation strategies depend not only on intervention design but also on which customers receive them. |
| Keywords: | Financial Inclusion, Debit Cards, Cash and In-kind Incentives, Nudges, Spillover Effects |
| JEL: | C93 D12 D14 D18 G21 G51 |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:tcd:tcduee:tep1826 |
| By: | Färber, Nina Lena; Hey, Florian |
| Abstract: | Article 5(2) of the Digital Markets Act (DMA) prohibits gatekeepers from combining personal data across core platform services unless end users consent within the meaning of the General Data Protection Regulation (GDPR). This paper argues that importing the GDPR's consent standard into a competition-driven provision produces a structurally mismatched regulatory design. Drawing on competition economics, we examine the underlying data combination rent and show that this rent, rather than raw data volume, constitutes the primary source of gatekeeper dominance. This rent is economically ambivalent: pro-competitive where combined data improves products, anti-competitive where it serves surplus extraction. Yet Article 5(2) DMA faces user-related constraints for acknowledging its economic ambivalence, because it rather restricts what is harmful only conditionally. We demonstrate that consent, when applied in markets characterized by pronounced power asymmetries, generates predictable welfare losses: entrenching incumbents, fragmenting data ecosystems, and reducing consumer welfare without effectively constraining the rent it targets. In particular, we argue that data-based payment constitutes an economically distinctive mode of exchange that, unlike monetary payment, does not directly deplete disposable income. The resulting two-fold regulatory impasse implies that neither widespread consent nor widespread refusal advances market contestability or data sovereignty. In response, we assess alternatives, including data fiduciaries, data intermediaries, and portability-based data markets, that target the data combination rent more directly. None dominates on all margins. The choice among imperfect institutions is comparative. We conclude that, if data combination is to be governed at all, effective regulation requires instruments calibrated to the economic structure of data-driven markets rather than to the individual autonomy framework of data protection regulation. |
| Keywords: | Competition Policy, Consent, Data Combination, Data Sovereignty, Digital Markets Act (DMA), Gatekeepers, General Data Protection Regulation (GDPR), Platform Regulation |
| JEL: | K21 L40 L51 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:tuiedp:343556 |
| By: | Angelika Welte; Stephen Wild; Patrick Fogaing kouamo |
| Abstract: | The Bank of Canada has a mandate to make adequate arrangements for the supply of bank notes as required for circulation in Canada. Therefore, understanding access to cash for small and medium-sized businesses (SMBs) is essential. In this study, we measure SMBs’ access to cash using the driving distance to financial institution (FI) branches. First, we measure the distance between SMBs and their nearest FI branch. The average driving distance to the nearest branch ranges from 1.3 km in large urban census subdivisions (CSDs) to 6.9 km in rural CSDs. In addition, 84% of SMBs are within a 5 km drive of the nearest branch. Second, we use a sample of 651 SMBs from the 2023 Merchant Acceptance Survey to examine SMBs’ banking choices. We compute driving distance and driving time from each SMB to the nearest branch and to a branch of its chosen financial institution. The average distance to the nearest branch is 2 km, while the average distance to the chosen branch is 6 km. Fewer than one-quarter of SMBs bank with the financial institution that operates the nearest branch. Rural SMBs are more likely than urban SMBs to bank with the financial institution that operates the nearest branch. |
| Keywords: | Money and payments; Cash and bank notes; Retail payments |
| JEL: | D D8 D83 E E4 E41 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocsap:26-41 |
| By: | Kar, Sohini |
| Abstract: | As microfinance has expanded in India, so have efforts to regulate the sector. The competing regulatory authority of the state governments and the central bank have produced unexpected refusals by borrowers to repay loans, claiming waivers. These waivers, however, are often found to be fakes. In the context of financial inclusion, this article examines regulatory authority at the margins of the state. The growth of microfinance has raised concerns over the systemic impact of non-performing assets in the sector. While the expansion of formal finance has required the greater reach of the central bank, this often comes into competition with the political arm of the state. This paper shows how waivers—both real and fake—operate as a form of claims-making by poor borrowers. |
| Keywords: | microfinance;financial inclusion;regulation;central banks;debt |
| JEL: | F3 G3 J1 |
| Date: | 2026–08–29 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:138696 |
| By: | Valentina Michelangeli (Bank of Italy); Silvia Sacco (IVASS); Valentino Bado (Bank of Italy); Valeria De Chiara (Bank of Italy); Ginette Eramo (Bank of Italy); Francesco Ficarola (IVASS); Irene Mavilia (Bank of Italy); Claudia Miani (Bank of Italy); Ivan Quaglia (Bank of Italy); Giuseppe Reale (Bank of Italy); Francesco Sciarretta (IVASS); Riccardo Scimone (Bank of Italy); Laura Sigalotti (Bank of Italy) |
| Abstract: | We analyse the structure and evolution of the Italian financial system over the period 2019-2025 using a multilayer network framework that captures interconnections across financial institutions and instruments. The network has a bank-centred core, with insurance companies acting as intermediate connectors and investment funds forming a broad periphery. Although the overall number of institutions remains broadly stable, sectoral dynamics diverge, as consolidations among banks and insurers are offset by the expansion of the investment fund sector. While individual layers have distinct topological characteristics, cross-sector linkages account for a growing share of total connections, underscoring their increasing role in shock transmission. Despite its sparse structure, the network exhibits small-world properties, implying a rapid contagion potential. Consolidation episodes are associated with temporary but meaningful structural shifts, while the network's overall architecture remains remarkably stable over time. |
| Keywords: | banks, insurers, investment funds, interconnections, network analysis |
| JEL: | G21 G22 G23 G18 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:bdi:opques:qef_1049_26 |
| By: | Michelle W. Bowman |
| Date: | 2026–09–18 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgsq:103778 |
| By: | Daniela Balutel (National Bank of Moldova; Alexandru Ioan Cuza University) |
| Abstract: | I build and test a theoretical model of Bitcoin adoption and unadoption in which beliefs about Bitcoin’s long-run survival and heterogeneous learning rates drive entry, exit, and reentry decisions. The model implies ranked belief distributions across never owners, owners, and past owners and describes how these distributions and the associated ownership shares evolve over time. Using 2017–2019 data from the Bank of Canada’s Bitcoin Omnibus Survey and a sequential logit model with control functions, the empirical belief distributions, which are a key determinant of both entry and exit, align with the model: owners are the most optimistic, never owners the most pessimistic, and past owners lie in between, with past owners becoming more optimistic over time. A composite cryptofinancial literacy (CFL) index plays a context-dependent role, because high-CFL individuals are less likely to exit during downturns but more likely to exit when market conditions improve, while medium- and low-CFL individuals are less likely to enter yet more inclined to exit. Counterfactual simulations that shift the population distribution of CFL upward show that higher CFL increases both current and past ownership, especially among respondents with strong survival beliefs, highlighting a complementarity between literacy and optimism in shaping the Bitcoin adoption lifecycle. |
| URL: | https://d.repec.org/n?u=RePEc:boc:carp26:05 |
| By: | Hubert Tchakoute Tchuigoua; Jean-Pierre Gueyie |
| Abstract: | This study examines how gender diversity on boards influences the cash holdings of microfinance institutions. Specifically, it investigates whether regulatory status or international affiliation moderates or amplifies the relationship between gender diversity on the board and cash holdings. Using an international sample of 3416 microfinance institution-year observations from 2010 to 2018, we find that institutions with greater gender diversity on their boards exhibit lower cash holdings. This is particularly true among regulated and non-affiliated microfinance institutions. The policy implication is that board gender diversity moderates the agency costs resulting from holding high levels of free cash flows. |
| Date: | 2026–09–01 |
| URL: | https://d.repec.org/n?u=RePEc:ulb:ulbeco:2013/413353 |
| By: | Ivan J. Vera-Marun |
| Abstract: | We examine log-optimal portfolio allocation when the long-run price of an asset follows a power-law trajectory, $P(t)=At^\alpha$, and its instantaneous return variance decays as $\sigma^2(t)=\sigma_0^2 t^{-2\gamma}$. Under a zero risk-free-rate benchmark, the continuous-time Kelly fraction scales as $K^\ast(t)=(\alpha/\sigma_0^2)t^{2\gamma-1}$. Exact temporal invariance therefore occurs when $\gamma=1/2$, whereas deviations from this value produce systematic age dependence in the allocation. We propose a scaling hypothesis connecting growth in network participation, effective market liquidity, and declining volatility. Under a specified set of scaling assumptions, this model predicts the benchmark exponent $\gamma=1/2$. Using historical daily Bitcoin prices, we estimate the power-law price exponent and examine the sensitivity of the volatility exponent to the length of the rolling window. For windows of four to nine years, the estimated volatility exponents have an arithmetic mean of 0.53 and a cross-window standard deviation of approximately 0.03. Because these estimates are obtained from overlapping observations and the same underlying price history, this spread is interpreted as a measure of model sensitivity rather than a formal confidence interval. Finally, we show that a time-dependent multiplicative contribution to return variance generally breaks exact Kelly invariance. We illustrate this result using a scenario in which Bitcoin transaction-fee variability affects the effective variance process. The results identify the conditions under which log-optimal allocation can remain stable under non-stationary power-law asset dynamics and clarify the assumptions required when applying this result to Bitcoin. |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2609.22612 |
| By: | Michelle W. Bowman |
| Date: | 2026–09–18 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgsq:103777 |