It takes many years for more efficient electronic payments to be widely used, and the fees that merchants (consumers) pay for using those services are increasing (decreasing) over time. We address these puzzles by studying payments system evolution with a dynamic model in a twosided market...

Major operational incidents in payment systems suggest the need to improve their resiliency. Meanwhile, as payment infrastructures become more digitalized, integrated, and interdependent, they require an even higher degree of resilience. Moreover, risks that could trigger major disruptions have...

Europe's high pre-existing level of financial development can partly account for the relatively smaller reach of fintech payment and lending activities compared to some other regions. But fintech activity is growing rapidly. Digital payment schemes are expanding within countries, although...

The level and trend in cash use in a country will influence the demand for central bank digital currency (CBDC). While access to digital currency will be more convenient than traveling to an ATM, it only makes CBDC like a bank debit card-not better. Demand for digital currency will thus be weak...

Cash use in most countries is falling slowly. On the margin, younger adults favor cash substitutes over cash. For older adults it is the reverse. Revealed preference tied to a changing population age structure seems to be the main influence on the demand for cash and why it is falling. Cash use...

We study the optimal design of a central bank digital currency (CBDC) in an environment where agents sort into cash, CBDC and bank deposits according to their preferences over anonymity and security; and where network effects make the convenience of payment instruments dependent on the number of...

Properly designed wholesale payments system can make a significant contribution to enhancing market discipline in the financial sector, reducing the risk of systemic disturbance and permitting a less extensive safety net for financial institutions. The objective of these reforms has been to...

The coronavirus pandemic is a global crisis like no other in modern times, and there is a growing apprehension about handling potentially contaminated cash. This paper is the first empirical attempt in the literature to investigate whether the risk of infectious diseases affects demand for...

Monetary policy space remains constrained by the lower bound in many countries, limiting the policy options available to address future deflationary shocks. The existence of cash prevents central banks from cutting interest rates much below zero. In this paper, we consider the practical...

The literature on the economic effects of electronic money and banking lacks organization and a common analytical framework. This paper identifies the main issues raised by e-money and e-banking and presents them as six puzzles. Our solutions to the puzzles build a framework for analyzing the...