Payments and privacy in the digital economy

Toni Ahnert, Peter Hoffmann and Cyril Monnet

No 17313, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We propose a model of financial intermediation, payments choice, and privacy in the digital economy. While digital payments enable merchants to sell goods online, they reveal information to their lender. Cash guarantees anonymity, but limits distribution to less efficient offline venues. In equilibrium, merchants trade off the efficiency gains from online distribution (with digital payments) and the informational rents from staying anonymous (with cash). Privacy-preserving digital payments raise welfare by reducing privacy concerns, but only arrangements that enable data-sharing through consent functionalities guarantee that the social optimum is attained.

Keywords: Payments; Privacy; Financial intermediation; Central bank digital currency; Data sharing (search for similar items in EconPapers)
JEL-codes: D82 E42 E58 G21 (search for similar items in EconPapers)
Date: 2022-05
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Journal Article: Payments and privacy in the digital economy (2025)
Working Paper: Payments and privacy in the digital economy (2022)
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