Discussion Paper Details

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Title: The digital economy, privacy, and CBDC

Author(s): Toni Ahnert, Peter Hoffmann and Cyril Monnet

Publication Date: May 2022

Keyword(s): Central bank digital currency, Digital Platforms, Financial Intermediation, Payments and privacy

Programme Area(s): Financial Economics

Abstract: We study a model of financial intermediation, payment choice, and privacy in the digital economy. Cash preserves anonymity but cannot be used for more efficient online transactions. By contrast, bank deposits can be used online but do not preserve anonymity. Banks use the information contained in deposit flows to extract rents from merchants in need of financing. Payment tokens issued by digital platforms allow merchants to hide from banks but enable platforms to stifle competition. An independent digital payment instrument (a CBDC) that allows agents to share their payment data with selected parties can overcome all frictions and achieves the efficient allocation.

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Bibliographic Reference

Ahnert, T, Hoffmann, P and Monnet, C. 2022. 'The digital economy, privacy, and CBDC'. London, Centre for Economic Policy Research.