The Liquidity Premium of Digital Payment Vehicle

Zefeng Chen and Zhengyang Jiang

No 9933, CESifo Working Paper Series from CESifo

Abstract: Do digital payment technologies generate liquidity premia like cash and Treasury? We provide an estimate in the context of the world’s largest digital payment platform, Alipay. Our empirical strategy exploits the variation in the timing of the introduction of money market funds that users on this platform can hold and use for digital transactions. We find that, once a fund becomes eligible for these transactions, its size increases by 45 times on average. Through the lens of an equilibrium demand system that models funds as imperfect substitutes, this size increase maps to a liquidity premium of about 0.8% per annum.

Keywords: digital payment; liquidity premium; money market fund (search for similar items in EconPapers)
JEL-codes: E41 G12 (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-mon and nep-pay
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_9933

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