Money, e-money and consumer welfare
Carli, Francesco; Uras, Burak R. (23.12.2022)
Numero
15/2022Julkaisija
Bank of Finland
2022
Julkaisun pysyvä osoite on
https://urn.fi/URN:ISBN:978-952-323-428-4Tiivistelmä
We develop a micro-founded monetary model to inquire the role of a privately provided e-money instrument for household consumption smoothing and welfare. Different from fiat money, e-money users pay electronic transaction fees, but in turn e-money reduces spatial separation frictions and enables risk-sharing. We characterize the conditions that promotes e-money to be Pareto improving and the conditions when e-money reduces its users' welfare - despite for the consumption-smoothing it induces. We calibrate our model for the context of M-Pesa in Kenya and conduct a quantitative analysis. Since our quantitative analysis reveals a limited role for privately provided e-money, we recommend the optimality of e-money regulation.