Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/241173 
Year of Publication: 
2020
Series/Report no.: 
Bank of Canada Staff Working Paper No. 2020-7
Publisher: 
Bank of Canada, Ottawa
Abstract: 
In recent years, there have been rapid technological innovations in retail payments. Such dramatic changes in the economics of payment systems have led to questions regarding whether there is consumer demand for cash. The entry of these new products and services has resulted in significant improvements in the characteristics of existing methods of payment, such as tap-and-go technology or contactless credit and debit cards. In addition, the introduction of decentralized digital currencies has raised questions about whether there is a need for a central bank digital currency (CBDC) and, if so, what its essential characteristics should be. To address these questions, we develop and estimate a structural model of demand for payment instruments. Our model allows for rich heterogeneity in consumer preferences. Identification of the distribution of consumer heterogeneity relies on observing individual-level consumer decisions at the point of sale. Using parameter estimates, we conduct a counterfactual experiment of an introduction of CBDC and simulate post-introduction consumer adoption and usage decisions. We also provide insights into the potential welfare implications of the introduction of new payment instruments.
Subjects: 
Bank notes
Digital currencies and fintech
Financial services
JEL: 
C51
E42
L14
L52
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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