We build a network formation game of firms with trade flows to study the adoption and usage of a new digital currency as an alternative to correspondent banking. We document endogenous heterogeneity and inefficiency in adoption outcomes and explain why higher usage may correspond to lower...

Exchanging collateral has emerged as the market standard for mitigating counterparty credit risk in the interbank derivatives market. Collateral postings do not, however, eliminate that risk completely. Most notably, the so-called gap risk remains, which is the risk that in the event of...