Monetizing Privacy with Central Bank Digital Currencies
26 Pages Posted: 20 Jan 2021 Last revised: 14 Jan 2022
Date Written: January 1, 2021
In a market where consumers choose between payment options, and firms compete with products and payment-vehicle specific prices, we show that payment data drives the formation of a monopoly. A data-sharing policy results in a competitive market, but it leads to a reduction in total surplus and potentially a decrease in consumer welfare. The introduction of a privacy-preserving central bank digital currency (CBDC) preserves the existing market structure and improves consumers' welfare by enabling them to better monetize their private information.
Keywords: central bank digital currency, customer data, privacy, market structure, digital cash, payments
JEL Classification: E42, L11, L15
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