Consumer choices under new payment methods

Abstract

This study suggests a payment portfolio model that includes new payment methods that have emerged from the development of cryptocurrency markets and central bank digital currencies (CBDCs). Our model analyzes the optimal payment choice for consumers under various macroeconomic conditions. We determine that an individual economic agent chooses payment methods under specific conditions by incorporating policy interest rates on CBDCs and stablecoins used on cryptocurrency exchanges. We analyze the impacts of CBDCs and stablecoins on the choice of whether to use cash or deposits. We also examine how the agent changes her portfolio compositions in response to exogenous macroeconomic policies. If a government replaces cash with a CBDC, the convenience of digital currency would not affect consumer choices. The higher the government's interest rate on CBDCs, the more consumers will use CBDCs than deposits.