Ecology

Biology

Payment service provider

Digital economy

Computer security

Commerce

Anonymity

Cash

Blockchain

Computer science

Payment

Business

Internet privacy

Competition (biology)

Mobile payment

Political science

Electronic money

Finance

Intermediation

Sharing economy

Digital currency

SSRN Electronic Journal

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.

The digital economy, privacy, and CBDC