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Payments and privacy in the digital economy

Author

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  • Ahnert, Toni
  • Hoffmann, Peter
  • Monnet, Cyril

Abstract

We propose a model of financial intermediation, payments choice, and privacy in the digital economy. While digital payments enable mer-chants to sell goods online, they reveal information to their lender. Cash guarantees anonymity, but limits distribution to less efficient of-fline venues. In equilibrium, merchants trade off the efficiency gains from online distribution (with digital payments) and the informational rents from staying anonymous (with cash). Privacy-preserving digi-tal payments raise welfare by reducing privacy concerns, but only ar-rangements that enable data-sharing through consent functionalities guarantee that the social optimum is attained. JEL Classification: D82, E42, E58, G21

Suggested Citation

  • Ahnert, Toni & Hoffmann, Peter & Monnet, Cyril, 2022. "Payments and privacy in the digital economy," Working Paper Series 2662, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20222662
    Note: 848910
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    Cited by:

    1. Keister, Todd & Monnet, Cyril, 2022. "Central bank digital currency: Stability and information," Journal of Economic Dynamics and Control, Elsevier, vol. 142(C).
    2. Jonathan Chiu & Cyril Monnet, 2024. "Public and Private Money Creation for Distributed Ledgers: Stablecoins, Tokenized Deposits, or Central Bank Digital Currencies?," Staff Working Papers 24-35, Bank of Canada.
    3. Te Bao & John Duffy & Nobuyuki Hanaki, 2024. "Paying to Avoid the Spotlight," ISER Discussion Paper 1238, Institute of Social and Economic Research, The University of Osaka.
    4. Magin, Jana Anjali & Neyer, Ulrike & Stempel, Daniel, 2023. "The macroeconomic effects of different CBDC regimes in an economy with a heterogeneous household sector," DICE Discussion Papers 396, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    5. Agur, Itai & Ari, Anil & Dell’Ariccia, Giovanni, 2025. "Bank competition and household privacy in a digital payment monopoly," Journal of Financial Economics, Elsevier, vol. 166(C).
    6. Charles M. Kahn & Maarten R.C. van Oordt, 2022. "The Demand for Programmable Payments," Tinbergen Institute Discussion Papers 22-076/IV, Tinbergen Institute.
    7. Magin, Jana & Neyer, Ulrike & Stempel, Daniel, 2023. "The Macroeconomic Effects of Different CBDC Regimes in an Economy with a Heterogeneous Household Sector," VfS Annual Conference 2023 (Regensburg): Growth and the "sociale Frage" 277656, Verein für Socialpolitik / German Economic Association.
    8. Alexis Derviz, 2023. "Foreign Exchange Implications of CBDCs and Their Integration via Bridge Coins," Working Papers 2023/7, Czech National Bank, Research and Statistics Department.
    9. Mishra, Bineet & Prasad, Eswar, 2024. "A simple model of a central bank digital currency," Journal of Financial Stability, Elsevier, vol. 73(C).
    10. Wang, Chien-Chiang & Li, Yiting, 2023. "Anonymous credit," MPRA Paper 118480, University Library of Munich, Germany.
    11. Frost, Jon & Rochet, Jean-Charles & Shin, Huyn Song & Verdier, Marianne, 2025. "Competing digital monies," TSE Working Papers 25-1644, Toulouse School of Economics (TSE), revised Jul 2025.

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    Keywords

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    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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