Money, E-money, and Consumer Welfare
56 Pages Posted: 6 Feb 2023
Date Written: February 6, 2023
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.
Keywords: E-Money, M-Pesa, Risk-Sharing, Welfare, Monetary Policy
JEL Classification: E41, E44, G23, O11
Suggested Citation: Suggested Citation