Repository logo

Browsing by Author "Wong, Tsz-Nga"

Filter results by typing the first few letters
Now showing 1 - 1 of 1
  • Thumbnail Image
    ItemOpen Access
    On the essentiality of E-money
    (Te Herenga Waka—Victoria University of Wellington, 2016) Chiu, Jonathan; Wong, Tsz-Nga
    Recent years have witnessed the advances of e-money systems such as Bitcoin, PayPal and various forms of stored-value cards. This paper adopts a mechanism design approach to identify some essential features of different payment systems that implement the optimal resource allocation. We find that, compared to cash, e-money technologies allowing limited participation, limited transferability and non-zero-sum transfers can help mitigate fundamental frictions and enhance social welfare, if they satisfy conditions in terms of parameters such as trade frequency and bargaining powers. An optimally designed e-money system exhibits realistic arrangements including non-linear pricing, cross-subsidization and positive interchange fees even when the technologies incur no costs. Regulations such as a cap on interchange fees (à la the Dodd-Frank Act) can distort the optimal mechanism and reduce welfare.