IMF-数字支付垄断下的银行竞争与家庭隐私（英）

AnilAriandGiovanniDellAricciaWP/23/121IMFWorkingPapersdescriberesearchinprogressbytheauthor(s)andarepublishedtoelicitcommentsandtoencouragedebate.TheviewsexpressedinIMFWorkingPapersarethoseoftheauthor(s)anddonotnecessarilyrepresenttheviewsoftheIMF,itsExecutiveBoard,orIMFmanagement.2023©2023InternationalMonetaryFundWP/23/121IMFWorkingPaperResearchDepartmentBankCompetitionandHouseholdPrivacyinaDigitalPaymentMonopolyPreparedbyItaiAgur,AnilAriandGiovanniDell'Ariccia*AuthorizedfordistributionbySoledadMartinezPeriaJune2023IMFWorkingPapersdescriberesearchinprogressbytheauthor(s)andarepublishedtoelicitcommentsandtoencouragedebate.TheviewsexpressedinIMFWorkingPapersarethoseoftheauthor(s)anddonotnecessarilyrepresenttheviewsoftheIMF,itsExecutiveBoard,orIMFmanagement.ABSTRACT:Lenderscanexploithouseholds'paymentdatatoinfertheircreditworthiness.Whenhouseholdsvalueprivacy,theythenfaceatradeoffbetweenprotectingsuchprivacyandcreditconditions.Westudyhowtheintroductionofaninformationallymoreintrusivedigitalpaymentvehicleaffectshouseholds'cashuse,creditaccess,andwelfare.Atechmonopolistcontrolstheintrusivenessofthenewpaymentmethodandmanipulatesinformationasymmetriesamonghouseholdsandoligopolisticbankstoextractdatacontractsthataremorelucrativethanlendingonitsown.Thelaissez-faireequilibriumentailsadigitalpaymentvehiclethatismoreintrusivethansociallyoptimal,providingarationaleforregulation.JELClassificationNumbers:D82,E41,G21,G28Keywords:Privacy;Financialintermediation;BigTech;DataregulationAuthor’sE-MailAddress:iagur@;aari@;gdellariccia@IMFWORKINGPAPERSBankCompetitionandHouseholdPrivacyinaDigitalPaymentMonopolyINTERNATIONALMONETARYFUND3WORKINGPAPERSBankCompetitionandHouseholdPrivacyinaDigitalPaymentMonopolyurAnilAriandGiovanniDellAriccia1WewouldliketothankMichaelJunhoLee,PeterHoffmann,FlorianHeider,BrandonTanandSnehaAgrawalfordiscussionsandaudiencesatthe2023SwissWinterConferenceonFinancialIntermediation,theLuiss-CEPRFinanceWorkshop,theIMF's5thAnnualMacro-FinancialConference,theBIS,CollegioCarloAlbertoTurin,andaninternalIMFseminarforhelpfulcomments.11IntroductionNewpaymenttechnologiesaremakingitincreasinglyeasytocollectandstoreinformationaboutconsumerbehavior.Thesedatacanbeparsedtoinferavarietyofpersonalcharacteristicsthatcorporationscanprofitablyexploitthroughcarefullytargetedoffers.Thesestrategiesrangefromrelativelylighttouch,forinstanceindividuallytargetedinternetads,tomoreheavyhanded,suchaspricediscriminationorcreditratingsbasedonanindividual’sspendingbehavior.Atthesametime,networkexternalitiesarelikelytolimitthenumberofviableelectronicpaymentprovidersandthusendowthemwithsignificantmarketpowerinthecollectionofpersonaldata.1Theevolutionofpaymenttechnologyandassociateddatacollectionhasfar-reachingimplica-tionsforcreditmarketcompetitionaswellashouseholdprivacy.Ontheonehand,paymentdatacanreduceinformationalasymmetriesandunlockmarketsegmentswhereadverseselectionmayotherwisehindertheprovisionofcredit.Indeed,thereisgrowingevidencethatnewmeansofpayment,includingthosecreatedbyBigTechs,expandcreditaccess.2Ontheotherhand,privacyconsiderationsarounddatadisclosureinpaymentsandlendingareacuteformanyhouseholds,andtodifferingdegreesamongthem.3;4Questionsthenariseastohowmarketswillnavigatethesetradeoffs,whowillbethewinnersandlosersoftheintroductionofnewformsofdatacol-lection,andwhethertheriseofthesenewtechnologiescallsforgovernmentintervention.Inthispaper,weshedlightonthesequestionsbybuildingamodelinwhichadigitalpaymentis-suercompetesagainstananonymousformofpayment,cash,forthebusinessofhouseholds.Thiscenterstheattentiononastarkchoicebetweenoneanonymouspaymentmethodthatprecludesinformationcollectionandanotherwithanadjustableinformationalintrusiveness:theissuerofthedigitalpaymentvehiclecandecidewhatconsumer-spendingdatatocollectandretain.5Inpractice,thiscouldmean,forinstance,thatforeachtransactiontheonlydatacollectedandre-tainedcouldbethevendorandtheamountspent,similartowhathappenswithcreditcards,orinsteadreachthelevelofthespecificitemsbought.Further,thedatacollectorcouldchoosewhat1PaymentdataisincreasinglymigratingtoBigTechs.E.g.,whenacustomeratashoestorepayswithabankcard,thelocationandtypeofstorearevisibletothebank,whilewhenbuyingshoesonAmazonwithabankcard,only"A"appearsonthechargeandAmazonpocketsthepaymentdata.Moreover,manyBigTechsen-couragepaymentdatamigration,includingbeyondtheirplatforms.E.g.,AmazonrewardsconsumersthatsharereceiptsofpurchasesoutsideAmazon;AlibabaandWeChatprovidewidelyusedmeansofpaymentinChina;andMetahasexploreddigitalcurrencyissuance(LibraandDiem).2See,e.g,AgarwalandAssenova(2022),Allenetal.(2021),Babinaetal.(2022),Becketal.(2022),Bergetal.(2020),Daltonetal.(2023),Frostetal.(2020),Ghoshetal.(2022),Hauetal.(2019),Huangetal.(2020),andOuyang(2022).3Althoughthevalueofdigitalprivacyingeneralisempiricallydebated(Acquistietal.,2016;Atheyetal.,2017;Bianetal.,2022;Chenetal.,2021;GoldfarbandQue,2023;Tang,2023),forpaymentsandlendingspecifically,moststudiesfindanimportantroleforprivacy.See,e.g.,Bijlsmaetal.(2022,2023),Borgonovoetal.(2021),ECB(2021),Engelsetal.(2022),Huetal.(2023),andLi(2023)onprivacyandpaymentchoice;andTang(2023)andDoerretal.(2023)onborrowers’willingnesstopaytolimittheintrusivenessofdatadisclosureinloanapplications.4StudiesreportingextensiveheterogeneityinprivacypreferencesincludeBianetal.(2022),Collisetal.(2022),GoldfarbandTucker(2012),Lin(2022),LinandStrulov-Shlain(2023),PrinceandWallsten(2022)andŠkrinjarietal.(2022).5Ouranalysisdoesnothingeoncashbeingthealternativeorpaymentsbeingtheonlysourceofcreditqualitydata.AsshowninAppendixB.1,thekeyassumptionisthattheissuer’smeansofpaymentrevealsmorecreditqual-ityinformation,notthatitistheuniquesourceofsuchinformation.2segmentsofpaymentdatatoconnecttoothersourcesofinformationaboutaspecificindividual:forinstance,paymentdatacouldbelinkedtousers’activityonsocialmediaaccountsorecom-merceplatforms.6Alternatively,thedigitalpaymentprovidercouldintroduceadigitalcurrencywithcustomizableprivacyfeatures.7Inthemodel,intrusivenessisachoicevariableforthedigi-talpaymentproviderthatdeterminestheprobabilitywithwhichusingthedigitalpaymentvehiclerevealsthecreditworthinessofitsusers.Householdsareconsumer-entrepreneursthatdifferintheircreditworthinessandtheircareforprivacy,bothofwhichareprivateinformation.Theyareendowedwithaprojectbutneedexter-nalfinancinginordertorealizeit.Thedigitalpaymentprovidersellstheinformationitcollectsaboutconsumerbehaviortobanks,whichcanexploitthisdatatoreduceadverseselectionwhencompetingforloanstoborrowersinanimperfectlycompetitivemarket.Astylizedspatialmodelprovidesindividualbankswithmarketpower(weassumethateachbankhasacostadvantageinlendingtoits"home"market).Whenoptimizinghouseholdschoosebetweenusingcashandthedigitalpaymentvehicle,theytakeintoaccounthowbeingobservedbythedigitalpaymentissueraffectstheirpersonalcostintermsoflossofprivacyandthepotentialrevelationoftheircreditworthiness(andtherebytheirborrowingconditions).Similarly,thedigitalpaymentprovidertakesthisoptimizingbehaviorintoaccountwhendeterminingtheintrusivenessofthepaymentvehicle.Howmuchdatatheprovidermanagestocollectdependsontheintrusivenessofthevehicleandontheportionofconsumersthatchoosestouseit.Themodel’sequilibriumdeliversfourmainresults.First,thedigitalpaymentprovidermakesthepaymentvehicleasintrusiveaspossible(leadingtocertainrevelationofcreditworthinesstypeforallusers).Thepaymentprovider’soptimalstrategystemsfromadverseselection,whichitex-ploitstoinstigateapartiallyunravellingLemons’Market.Thisplaysonthewaythathouseholdssortintomeansofpayment.Householdswithlowprivacycostsandhighcreditworthinesswanttousethedigitalpaymentvehicle,whilehouseholdswithhighprivacycostsandlowcreditwor-thinessoptforcash.Inbetween,therearehouseholdsthatwouldchoosecashifeveryonechosecash,butaresweptalonginadisclosurecascade,becausehighqualityhouseholds’departurefromcashworsenstheaveragecreditworthinessofthepoolofborrowersusingcashandhenceraisestheirequilibriumloanrate.8Asaresultofhouseholds’disclosureexternality,themarketshareofthedigitalpaymentvehicleincreaseswithintrusiveness,despitethehigherprivacycostexperiencedbyindividualusers.9Asecondresultisthatthedigitalpaymentprovidermaximizesfeerevenuebyofferingfreedataaccesstobanksoutsidetheirhomemarket.BankscompeteàlaBertrandinthecreditmarketand(undersymmetricinformation)aprice-limitequilibriumemergeswhereineachbankservesandextractssurplusfromborrowersinitshomemarketandunsuccessfullycontestsothermarkets.Hence,thehomebankstandstolosethemost(andthusiswillingtopaythemost)frombeingcut6Ashasbeenthecasefor,respectively,WeChatPayandAlipayinChina7Dependingontheirdesign,digitalcurrenciescancombineattributesofdepositsandcash,includingtheextentofprivacy(Aguretal.,2022).8Despitethesestrategiccomplementarities,thereisauniqueequilibrium.9AppendixesB.2andB.3investigatetherobustnessofthesemodeldynamicstofunctionalformchoices.3outofprivateinformationaboutborrowers’creditworthiness,anditswillingnesstopayfordataismaximizedbythethreatofanasymmetricequilibriumwhenout-of-home-marketinformationisfreetoallbanks.Thethirdresultisthatthedigitalpaymentproviderpreferstosellinformationtothebanksratherthanbecomingalenderandwallingofftheinformationforitsownuse.Thisstemsfromthefactthatthepresenceofcashmakesitsmonopolypowerpartlycontestable.Shouldtheproviderbe-comealenderitself,itwouldusethepaymentinformationtogainmonopolypoweroverloanmarketsandthusextractallthesurplusfromborrowers/consumers.Foreseeingthis,consumerswouldallusecash,denyingthedigitalprovideranyinformationaladvantageversuscompetinglenders.10Competitionamongbankshereactsasacommitmentdeviceforthepaymentprovidertosharesomeofthesurpluswithborrowers.Theabilitytocrediblycommittolowerloanrateswouldassuagethisoutcome,butintheabsenceofperfectcommitmentdevices,thisprovidesacounterbalancetotheintegrationofdatacollectionandcreditprovisioninadatamonopoly.11TheseresultscomeaboutinaneconomywhereenoughborrowershavepositiveNPVprojectsthatinequilibriumeveryprojectisfinanced.BorrowerswithnegativeNPVprojectsthatchoosetotransactwithcashgetfinancedbecause,evenafterdisclosurecascades,thereremainenoughborrowerswithhighcreditworthinessandhighcareforprivacythatalsochoosecash.Thisinturnimpliesthat,whiletherewillbewinners(householdswithalowcareforprivacyandhighcreditworthiness)andlosers(otherhouseholds),theaggregateeffectsofintroducingthedigitalpaymentvehiclearenegative:relativetoacash-onlyworld,aggregateoutputisunchangedandtherearepositiveprivacycosts.Itfollowsthatunderthesecircumstancesasocialplannerwouldalwayspreferanon-informativeformofpayment.Tospeaktothepotentialbenefitsofaninformationproducingpaymentvehicle,weconsideraneconomywhereundercertaincircumstancesinformationdisclosureleadstogreateraggregatecreditaccess.Putsimply,weconsiderstatesoftheworldunderwhichtheabsenceofinformationaboutindividualborrowersleadstoamarketshutdown.Whentheloanmarketforundifferen-tiatedhouseholdsfreezes,typedifferentiationbecomesofsocialvalue.12Amoreintrusivedatacollectionnowgiveshouseholdswithrelativelygoodcreditqualityawaytostandoutandobtaincredit.Thisraisestotalcreditprovisionandaggregatewelfare.Weusethisframeworktodrawinsightsabouttheoptimalregulationofadatamonopoly,whichconstitutesourfourthkeyresult.Regulationisenvisagedasaslow-movingpolicy,determinedbeforetheeconomicstatematerializes,andimplementedasaconstraintontheintrusivenessofthemonopolist’sdatacollection.Optimalregulationheretradesoffthecostsofintrusivenesswhencreditprovisionisassuredagainstitsbenefitsduringacreditcrunch.Akeyinsightisthatregulationismostneededwhenthecompetingmeansofpaymentbothhavesizablemarketshares.Thisisbecausebalancedmarketsharesarisefromintermediateprivacypreferences,underwhichdisclosurecascadesarebothlargeandpainfulenoughtomatter.We10Asimilarreasoningappliesifthepaymentprovidersellsitsdataexclusivelytoonebank.11Asopposedto,e.g.,economiesofscopefavoringintegration(Huang,2022;RishabhandSchäublin,2021).12Wealsoinvestigateintermediatestatesinwhichpaymentdatacollectiondetermineswhetherlendingtoundif-ferentiatedhouseholdsissustained:asufficientlyintrusivedesigncollapsesthatmarket.4alsoanalyzehowoptimalregulationrespondstomarketpowerinlendingandtothedistributionofreturnsacrossstates.Furthermore,wefindthattherecanbearoleforasecondpolicyinstrument.Optimalpolicytar-getstheamountofrevealedhouseholddata,whichconsistsofanextensive(theshareofhouse-holdsoptingfordisclosure)andanintensivemargin(theextentofrevelationaboutsuchhouse-holds).Regulationaffectsbothofthesemargins.Butbecausetherearetwomargins,thepolicymakercanattainhigherwelfareifasecondinstrumentisavailable.Weexploretheexampleofataxorsubsidyonhouseholdsthatoptforthemonopolist’spaymentmethod,whichimpactsonlytheextensivemarginofdisclosure.Thereasonthatasubsidycanpotentiallybesociallyoptimalisthatthereisunderprovisionofhouseholddatainthebadstate,evenwithamaximallyintru-sivedigitalpaymentsystemdesign:bankmarketpowerimpliesmarkupsthatrepelsomepositiveNPVhouseholdsfromdisclosure,leavingtheirprojectsunfinancedinthisstateandreducingag-gregatewelfare.Dependingonparametervalues,eitherataxorasubsidycanbeoptimallycom-binedwithregulation.13Wehighlighttheextenttowhichthepaymentdatamonopolyamplifiesexternalitiesinanexten-sionwhereinthedigitalpaymentsystemisownedbyaconsortiumofbanksratherthanamo-nopolist.14Thewelfareoutcomeisinbetweenthemonopolistandthesocialplanner:thebankconsortiumneitheractivelyexploitsnorleansagainstthedisclosureexternalities.Asimilarout-comeisseeninanotherextensionwhereinhouseholdsowntheirdata,whichrelatestothedataportingandopenbankingpoliciesobservedinanincreasingnumberofcountries(OECD,2023).Ourpaperrelatestoagrowingliteratureonemergingfinancialtechnologiesinpaymentsandcreditprovision.15Likeus,Parlouretal.(2022b)andHeetal.(2023)considerborrowersthatareheterogeneousinbothcreditqualityandaseconddimension(respectively,bankaffinityandpri-vacy),anddataexternalitiesamongsuchborrowerstakecenterstage.16InParlouretal.(2022b),FinTechpaymentproviderscompeteagainstabankandexternalitiesstemfromcouplingdatagarneredfrompaymentserviceswithcreditprovision.17Heetal.(2023)alsoconsiderlendingmarketcompetitionbetweenbanksandFinTechentrants,andshowthathouseholddataowner-shipissuboptimalasindividualdatasharingdecisionsleadtoaggregatecreditqualityinferencesbylenders.1813Relatedly,thetwoinstrumentscanoptimallyeitherbeusedassubstitutes(e.g.,ataxandlooserregulationthanifregulationactsalone)orcomplements(e.g.,asubsidyandlooserregulation).14TheconsortiumsettingisinspiredbyAllenandGale(1999).15Muchofthisliteraturebuildsontheclassicalliteratureonoptimaldisclosure(Akerlof,1970;GrossmanandHart,1980;Jovanovic,1982;Milgrom,1981).16Thesesetupsalignswithempiricalfindingsthatadditionaldimensionsofagentheterogeneity(inadditiontohiddenquality)avoidafull"unraveling"equilibriumwhereallagentsopttodiscloseprivateinformation(Jinetal.,2021;JinandVasserman,2021;Soleymanianetal.,2021).17Onasymmetricinformationanddataexternalities,seealsoAcemogluetal.(2022),BergemannandBonatti(2022),Bergemannetal.(2022),Choietal.(2019),Cicalaetal.(2021),Garrattetal.(2021),JonesandTonetti(2020)andParlouretal.(2022a).18InHuang(2021)banksalsocompetewithFinTechlenders,whichrelyondatafromlinkedecommerceplat-formswhilebanksrelyonphysicalcollateral,leadingtodifferentborrowertypespecializationsforFinTechsandbanks.InFishmanetal.(2020)bankschoosewhethertopaytoscreenoutunprofitableborrowersandthisdecisionimposesdynamicexternalities:tighterscreeningworsensthepoolofpotentialborrowers,increasingbanks’incen-tivestoscreeninthefuture.5Differentfromthesestudies,weconsideradatamonopolistthatstands"upstream"andcontrolstheflowofinformation,activelyexploitinginformationasymmetriesanddataexternalities.Inessence,wemodelaBigTech,whereasParlouretal.(2022b)andHeetal.(2023)modelFin-Techs.19UnliketheFinTechs,ourBigTechdeterminestheextentofintrusivenessofitsdatacol-lection,whileitcompeteswithcash,whichallowshouseholdstooptoutofitsdataweb.Thislaysbaretheincentivesofadatamonopolisttoplayoffhouseholdsandbanksagainsteachother,includingbystayingabovethefrayofthecreditmarketandselectivelyofferingfreedataaccesstosomebanks.SeveralpapersconsidertheroleofaCentralBankDigitalCurrency(CBDC)inthepreservationofprivacy.InGarrattandVanOordt(2021),thesocialvalueofCBDCderivesfromthefactthatprivacyisapublicgood:takingactionstoprotectdigitalprivacyiscostlytoaconsumer,whilefirmsusedatacollectedthroughpaymentstopricediscriminatefutureconsumers.20InGarrattandLee(2021),theCBDCraiseswelfarecomparedtohouseholdownershipoftheirdata:eitherpolicycanfendofftheendogenousformationofdatamonopolies,buthouseholddataownershipleadstodataunderprovision,whichhampersfirms’abilitytomatchproductstoconsumerpref-erences.InAhnertetal.(2022)andBrunnermeierandPayne(2022),aCBDCcanbemorethananelectronicequivalentofcash:itcanincludedatasharingfeaturesthathelpachievetheefficientallocationbycounteractingpaymentdatamonopolies.Differentfromus,thesepapersdonotfo-cusoninformationasymmetriesincreditmarkets.21Theremainderofthepaperisorganizedasfollows.Section2presentsthesetupofthemodel.Section3derivestheequilibriawhereinthedatamonopolistsellsthedatatolendersandSection4showswhyitchoosestodosoinsteadofengagingincreditprovisionitself.Section5analyzeswelfareandsociallyoptimalpolicydesign.Section6extendstolenderownershipofthedatamonopolist,tohelpdistillthemonopolist’sroleinthebaselinemodel.ProofscanbefoundinAppendixAandadditionalmodelextensionsinAppendixB.2219InformationflowonecommerceplatformsprovidesadifferentangleonBigTechs.InMarkovichandYehezkel(2023)privacycostheterogeneityunderliesthesuboptimalityofgivinghouseholdsownershipoftheirdatabecausetoomanyusersthenunderprovidedata,whichcomesatapubliccostasitworsensthefunctioningoftheplatformforallusers.Bouvardetal.(2022)focusonmonitoringefficiencydifferencesbetweenanecommerceplatformandbanksinthecompetitionforloanstowardsmerchantsthatareactiveontheplatform.InGambacortaetal.(2022)platformshaveanenforcementadvantageoverbanks,becausedefaultingfirmscanfaceexclusionfromtheplatform.Onecommercedatacollectionandprivacy,seealsoCharlson(2021),CongandMayer(2023),Ichihashi(2023)andKim(2021).20Privacyinpaymentscanalsobeapublicgoodwhentherearenodataexternalities,suchaswhenthereistheriskofidentitytheft(Kahnetal.,2005).21BrunnermeierandPayne(2022)doincorporatecreditmarkets,butfocusonenforcementandsearchcostsratherthandisclosureofhiddenqualities.OnCBDCdataandfinancialinclusion,seealsoTan(2023).22Theseextensionsare:alternativesourcesofcreditqualitydata(B.1);correlateddimensionsofhouseholdhet-erogeneity(B.2);analternativefunctionalformforprivacycosts(B.3);fees/subsidiesbythemonopolistontheuseofitspaymentvehicle(B.4);theinteractionbetweendatacollectionincentivesandmonetarypolicy(B.5);householddataownership(B.6).Lastly,appendicesB.7andB.8,respectively,containadditionalderivationsforSections3and5.62ModelWeconsideraneconomypopulatedbythreesetsofagents.Consumer-entrepreneurs,towhichforsimplicitywereferas"households",formthefirstset.Second,thereisamonopolistdigitalcurrencyissuer.23Lenderscomprisethethirdsetofagents.24Allagentsareriskneutral.TheeconomyisdistributedacrossN司3connectedislands.Eachislandhostsonelenderandacontinuumofhouseholdswithmass1.Alenderonthesameislandasaborroweriscalledtheborrower’s“homelender”,andborrowersonthesameislandasalenderarereferredtoasthelender’s“onisland”borrowers.Allislandssharethesamephysicalcurrency(cash)anddigitalcurrencyissuer.2.1HouseholdsEachhouseholdischaracterizedbythreevariables:thehousehold’screditworthinessandprefer-enceforprivacy,whichareprivateinformation,andtheislandwherethehouseholdlives,whichispubliclyobservable.Thelastisself-explanatory.Letusturntothefirsttwo.Eachhouseholdisbornwithaninvestmentprojectthatcanonlybebroughttofruitionwithfinancingfromalender.Allprojectsyieldthesamepayoff,y,whensuccessfuland0otherwise.However,theprobabilitythataprojectsucceeds,q,differsacrosshouseholds.Werefertoqasahousehold’screditqual-ityorcreditworthiness.Householdsalsodifferintheirpreferenceforprivacyor,putdifferently,theirperceivedcostinhavingtheirconsumptionpatternsscrutinized.Formally,eachhouseholdattachesdisutility'toitslossofprivacy.Ahousehold’screditworthinessandprivacypreferencesareindependentofeachother.25Oneachisland,themass1ofhouseholdsisuniformlydistrib-utedonatwo-dimensionalplanewithq2[;1]and'2[0;2].262.1.1HouseholdconsumptionHouseholdsarebornwithanendowmentthattheyusetowardsconsumption.Toavoidcompli-catingthemodelexcessively,weassumethatthisconsumptionisneededtomeetsubsistence23Themodel’ssetupandresultsapplytodigitalpaymentmonopolistsbroadlybut,tofixideas,wecallthemo-nopolistthatstandsatthecoreofourmodela"digitalcurrencyissuer".Itsbusinessmodel,basedonthecollectionandsaleofdata,isakintoMetaPlatforms,whilethenotionofadigitalcurrencyresemblestheLibraandDiemini-tiatives.Wedonotmodelwhatgivesrisetoamonopolyhere,suchasnetworkeffectsinmeansofpayment(Aguretal.,2022).Ontheendogenouschoiceofandatamonopolisttolaunchadigitalcurrency,seealsoChiuandWong(2022),Guennewig(2022)andKang(2023).24Wehereusetheterm"lenders"insteadofbanks,becausethewaytheyaremodeled(Section2.3)isgeneralenoughtoencompassnonbanklenders,includingFinTechs.25AppendixB.2considersanextensionwhereqand'are(eitherpositivelyornegatively)correlated.26Wechooseq2[;1]insteadofq2[0;1],asthelattercreatesadditionalcomplexities(individualbreakevenloanratesgotoinfinityasq!0,whichcomplicatestheidentificationofsimpleparameterconditionstocharacterizeequilibria;see,e.g.,Table1andfootnote83).Usingq2[;1]iswithoutlossofgenerality,becauseallpossibilitiesonthefunctioningoftheloanmarketarecoveredbyourframework(Section3).Givenq2[;1],welet'2[0;2]insteadof'2[0;1]toobtainaunitmassofhouseholdsoneachisland.7needs(i.e.,noneoftheendowmentcanbesavedorusedascollateralwhenrequestingcredit).Eachhouseholdchoosesbetweencashandthedigitalcurrency(DC)topayforconsumption.27Cashfullyprotectsthehousehold’sprivacy.IfinsteadthehouseholdusestheDCthenwithsomeprobability,a,theDCissuerisabletoinferthehousehold’screditworthiness.28Thehouseholdexperiencesprivacydisutility'frombeingobservedbytheDCissuer,butdoesnotcomprehendtheprocess(e.g.,theAIalgorithmsusedbytheDCissuer)throughwhichitsbehaviorcanleadtocreditworthinessinferences.Thehouseholddoes,however,understandtheextenttowhichitsbehaviorisobservedbytheDCissuer.Thatextent,whichiscapturedby