Chiu, JonathanWong, Tsz-Nga2016-08-022022-07-072016-08-022022-07-0720162016https://ir.wgtn.ac.nz/handle/123456789/19474Recent 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.pdfen-NZMoneyElectronic moneyMechanism designSearch and matchingEfficiencyTexthttp://www.victoria.ac.nz/sef/research/sef-working-papers