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Competing digital monies

Author

Listed:
  • Frost, Jon
  • Rochet, Jean-Charles
  • Shin, Huyn Song
  • Verdier, Marianne

Abstract

We compare three competing digital payment instruments: bank deposits, private stablecoins and central bank digital currencies (CBDCs). A simple theoretical model integrates the theory of two-sided markets and payment economics to assess the benefits of interoperability through a retail fast payment system organised by the central bank. We show an equivalence result between such a fast payment system and a retail CBDC. We find that both can improve financial integration and increase trade volume, but also tend to reduce the market shares of incumbent intermediaries.

Suggested Citation

  • 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.
    • Handle: RePEc:tse:wpaper:130555
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    References listed on IDEAS

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    1. Jonathan Chiu & Seyed Mohammadreza Davoodalhosseini & Janet Jiang & Yu Zhu, 2023. "Bank Market Power and Central Bank Digital Currency: Theory and Quantitative Assessment," Journal of Political Economy, University of Chicago Press, vol. 131(5), pages 1213-1248.
    2. Markus Brunnermeier & Jonathan Payne, 2022. "Platforms, Tokens, and Interoperability," Working Papers 2022-8, Princeton University. Economics Department..
    3. Williamson, Stephen D., 2022. "Central bank digital currency and flight to safety," Journal of Economic Dynamics and Control, Elsevier, vol. 142(C).
    4. Matutes, Carmen & Padilla, A. Jorge, 1994. "Shared ATM networks and banking competition," European Economic Review, Elsevier, vol. 38(5), pages 1113-1138, May.
    5. World Bank, 2024. "Interoperability Between Central Bank Digital Currency Systems and Fast Payment Systems," World Bank Publications - Reports 41812, The World Bank Group.
    6. Belleflamme, Paul & Peitz, Martin & Toulemonde, Eric, 2022. "The tension between market shares and profit under platform competition," International Journal of Industrial Organization, Elsevier, vol. 81(C).
    7. Verdier, Marianne, 2024. "Digital payments and bank competition," Journal of Financial Stability, Elsevier, vol. 73(C).
    8. Jose Aurazo & Holti Banka & Jon Frost & Anneke Kosse & Thomas Piveteau, 2024. "Central bank digital currencies and fast payment systems: rivals or partners?," BIS Papers, Bank for International Settlements, number 151, July.
    9. David Andolfatto, 2021. "Assessing the Impact of Central Bank Digital Currency on Private Banks," The Economic Journal, Royal Economic Society, vol. 131(634), pages 525-540.
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    12. Stephen Williamson, 2022. "Central Bank Digital Currency: Welfare and Policy Implications," Journal of Political Economy, University of Chicago Press, vol. 130(11), pages 2829-2861.
    13. Erik Feyen & Jon Frost & Leonardo Gambacorta & Harish Natarajan & Matthew Saal, 2021. "Fintech and the digital transformation of financial services: implications for market structure and public policy," BIS Papers, Bank for International Settlements, number 117, July.
    14. Lin William Cong & Simon Mayer, 2025. "Strategic Digitization in Currency and Payment Competition," NBER Working Papers 33593, National Bureau of Economic Research, Inc.
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    16. Cyril Monnet & Hyun Song Shin & Jon Frost & Leonardo Gambacorta & Raphael Auer & Tara Rice, 2022. "Central Bank Digital Currencies: Motives, Economic Implications, and the Research Frontier," Annual Review of Economics, Annual Reviews, vol. 14(1), pages 697-721, August.
    17. Cong, Lin William & Mayer, Simon, 2025. "Strategic digitization in currency and payment competition," Journal of Financial Economics, Elsevier, vol. 168(C).
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    Keywords

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    JEL classification:

    • 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
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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