Competing Digital Money

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ID: 332068
2026
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Abstract
Abstract We study competition between two payment instruments: bank deposits and digital platform tokens. Using a Hotelling model that integrates the theory of two-sided markets and payment economics, we assess how this competition is affected by a public payment infrastructure that makes private payment instruments interoperable. We show that interoperability, whether implemented as a fast payment system (FPS) or a central bank digital currency (CBDC), may eliminate payment access exclusion and increase trade volumes and social welfare, but at the cost of some disintermediation. When new payment service providers (PSPs) enter and compete for consumers, they soften competition for merchants: incumbent intermediaries then charge merchants higher fees and earn higher profits. This contrasts with entry of PSPs on the merchant side, which disciplines incumbent fees instead.
Reference Key
openalex_W7221365407 Use this key to autocite in the manuscript while using SciMatic Manuscript Manager or Thesis Manager
Authors Jon Frost, Jean-Charles mname Rochet, Hyun Song Shin, Marianne Verdier
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Journal international review of finance
Year 2026
DOI
10.1093/rof/rfag046
URL
https://doi.org/10.1093/rof/rfag046
Keywords Keywords not found

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