Money, E-money, and Consumer Welfare

56 Pages Posted: 6 Feb 2023

See all articles by Francesco Carli

Francesco Carli

Deakin University

Burak Uras

Tilburg University - Center for Economic Research (CentER); Tilburg University - Department of Economics

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

Carli, Francesco and Uras, Burak R., Money, E-money, and Consumer Welfare (February 6, 2023). Bank of Finland Research Discussion Paper No. 15/2022, Available at SSRN: https://ssrn.com/abstract=4349858 or http://dx.doi.org/10.2139/ssrn.4349858

Francesco Carli (Contact Author)

Deakin University ( email )

75 Pigdons Road
Victoria, Victoria 3216
Australia

Burak R. Uras

Tilburg University - Center for Economic Research (CentER) ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Tilburg University - Department of Economics ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

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