Cryptocurrencies, Central Bank Digital Cash, Traditional Money: Does Privacy Matter?

Abstract

The aim of this paper is to analyze the demand of both traditional and new media of exchange – as cryptocurrencies and central bank digital currencies – proposing a novel specification of the demand for money. In this specification, the medium of payment (MOP) has three properties: the first two are the MOP’s standard functions as a medium of exchange and as a store of value, while the third is a novel function as a store of privacy (anonymity value). The proposed framework is tested using a laboratory experiment. Our results show that anonymity matters, but less of the other two properties; at the same time, the presence of anonymity increases the overall appeal of a MOP, particularly if the individuals are risk prone; given anonymity, the sacrifice ratio between liquidity risk and opportunity cost are relatively high.

Keywords: Money, Cryptocurrencies, Central bank Digital Currency, Cash, Baumol, Friedman, Experimental economics

JEL Classification: B22, D72, E41, E42, E52, E58, G38, G41, K42