Money, E-money, and Consumer Welfare

Francesco Carli, Burak Uras

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Abstract

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.
Original languageEnglish
Place of PublicationTilburg
PublisherCentER, Center for Economic Research
Number of pages54
Volume2022-032
Publication statusPublished - 1 Dec 2022

Publication series

NameCentER Discussion Paper
Volume2022-032

Keywords

  • E-money
  • M-Pesa
  • Risk-sharing
  • welfare
  • Monetary Policy

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