Privacy and Money: It Matters
26 Pages Posted: 7 Feb 2019
Date Written: February 2019
One sentence summary: Do people see privacy as an attribute of media of payment?
In the economic literature, a medium of payment has two properties: liquidity and store of value. The fast and increasing development of digital currencies raises the question: is privacy a third attribute? We test these assertions through a laboratory experiment. From the theoretical viewpoint, the experiment relies on the simultaneous combination of Keynes’s traditional demand for money and Friedman’s forward looking intuition on the role of privacy. Results show that privacy positively matters and increases the overall appeal of a medium of payment, even more for risk prone individuals. Given privacy, the sacrifice ratio between liquidity risk and opportunity cost is relatively high. Within the current debate, the experiment suggests that the future competition between alternative currencies will depend on how the three properties will be mixed in a way consistent with the individual’s preferences.
Keywords: Money Demand, Cryptocurrencies, Central Bank Digital Currencies, Behavioural Economics
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