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Digital Money

Paper Session

Saturday, Jan. 3, 2026 8:00 AM - 10:00 AM (EST)

Philadelphia Marriott Downtown, Grand Ballroom Salon B
Hosted By: American Economic Association
  • Chair: Emre Ozdenoren, London Business School

Strategic Money and Credit Ledgers

Markus K. Brunnermeier
,
Princeton University
Jonathan Payne
,
Princeton University

Abstract

Can a digital “bills-of-exchange” system be established? We show that a sufficiently dominant trading platform can and will set up a ledger that allows f irms to purchase inputs by issuing tradable IOUs, which then serve as a savings vehicle and medium of exchange. The platform can incentivize the use of the ledger, and enforce repayment, by threatening exclusion from future trade, something that a stand-alone ledger cannot. In GE this lowers the equilibrium interest rate, but also increases the platform’s rent extraction. A public payment alternative that is competitive, but not too competitive, improves output and consumption.

Platform Money

Emre Ozdenoren
,
London Business School
Yuan Tian
,
London School of Economics
Kathy Yuan
,
London School of Economics

Abstract

This paper examines how a platform’s ability to create its own money affects its pricing decisions, the search and matching dynamics between buyers and sellers, and overall economic welfare. We show that by pricing in its own currency, the platform can extract seignorage from buyers while imposing higher fees on sellers. In contrast, the legacy market—lacking private money—cannot recoup seignorage from buyers and thus operates at a competitive disadvantage, even when inflation costs are less salient compared to direct fees. In environments where the platform’s technology is symmetric with that of the legacy market, the resulting market tightness on the platform is lower than socially optimal. However, when the platform’s technology is superior, the introduction of platform money moves the equilibrium closer to the social optimum compared to a fee-only platform.

Money and Barter in the Field: Evidence from a Digital Currency Experiment

Michael Bo-lin Wong
,
Hong Kong University

Abstract

This paper studies how money and barter coexisted in a Toronto‑based barter community that introduced a redeemable platform currency and later experienced a currency crisis. The platform enabled barter of used goods, while the digital token---redeemable at local stores at a fixed rate---facilitated exchange. Three unanticipated events provide quasi‑experimental variation: a five‑fold increase in token supply, a sharp restriction of redemption opportunities, and a complete halt of redemption. Using interrupted time‑series designs, I show that the monetary expansion raised total trades by around 57 per cent, entirely via token‑mediated trades, with barter unchanged. Restricting and then halting redemption reduced token acceptance and token‑mediated trade, with the initial breach of trust also lowering barter, via reductions in platform use and new user entry. These results highlight how reputational enforcement helps sustain private currencies, but it also magnifies the costs of currency crises.

Competing Digital Monies

Jon Frost
,
Bank of International Settlement
Jean-Charles Rochet
,
Toulouse School of Economics
Hyun Song Shin
,
Bank of International Settlement
Marianne Verdier
,
Université Paris Panthéon-Assas

Abstract

We compare three competing digital payment instruments: bank deposits, digital platform tokens and central bank digital currencies (CBDCs). A simple theoretical model integrates the theory of two-sided markets and payment economics. We use the model to assess the impact of a public option such as a fast payment system that makes private payment instruments interoperable, or a CBDC that provides general access to public digital money. We show that both options are essentially equivalent for the industrial organisation of the payment system. We find that, even if they may lead to some degree of disintermediation, both options can contribute to increasing financial inclusion and improving social welfare.

Discussant(s)
Will Cong
,
Cornell University
Christine Parlour
,
University of California-Berkeley
Alfred Lehar
,
University of Calgary
Rod Garratt
,
University of California-Santa Barbara
JEL Classifications
  • G0 - General
  • E4 - Money and Interest Rates