The Pricing of Payments

The pricing of payments has received increasing attention of regulators. In many cases, regulators are concerned that consumers do not face cost based prices. They argue that without cost based prices consumers will make inefficient choices. In this paper, it is argued that both, economics of scale and the particular laws governing pricing in two-sided markets provide a case against cost based pricing.Two-sided markets, interchange fees, surcharging, pricing strategies

Money: A Market Microstructure Approach

The current discussion about the future of the financial system draws heavily on a set of theories known as the ‘New Monetary Economics’. The New Monetary Economics predicts that deregulation and financial innovation will lead to a moneyless world. This paper uses a market microstructure approach to show that a common medium of exchange that serves as unit of account will remain a necessary instrument to reduce transaction costs. This finding is supported by empirical evidence from foreign exchange markets.New monetary economics, monetary separation, market microstructure theory, monetary theory, moneyless world, financial innovation

The spread of branch banking and the demand for cash in post-war Germany

The period from the 1950s to the late 1970s saw an almost uniform decline of cash-to-GDP ratios in industrial countries. A closer look at the German payment system suggests that the factor causing such a change has been the shift towards cashless wage payments. In this period, in Germany, the branch network of the banks expanded significantly and at the end of the period almost all economically active persons had a current account. This change was triggered by rising wages and incomes. Rising wages increased the burden of weekly wage payments in cash, and rising incomes made the average earner more interesting for banks. Moreover, regulation and de-regulation, triggering both, price and non-price competition, may also have played a role. Technological change has not been an independent driver. The introduction of cashless wage payments has not only affected the payment behavior but also the savings behaviour of households. These changes were evolutionary rather than revolutionary, however. So, even though the cash-to-GDP ratio declined in this period, absolute amounts of real cash per capita were still rising

Do the poor pay for card rewards of the rich?

Card payment systems are sometimes accused of taking from the poor and giving to the rich. The argument is as follows: High card fees are leading to higher retail prices for both, card users and cash users. However, high income card holders are receiving rewards when purchasing by card. The result may be a net transfer of, mostly low-income, cash users to, mostly high-income, card users. In this article a model with monopolist product differentiation is used to show that rich card holders may actually be paying for their card rewards themselves. In this case, there is perverse distribution effect

Target-balances: The Greek examples

This article looks at the evolution of the Target balance of the Greek central bank. It is shown that in the first 18 months 'after Lehman', lending policy has been relatively lax, contributing to the increase of Target deficits. However, from spring 2010 onwards, there has been a slowburning bank run. Greek depositors converted their deposits into cash or transferred them to core countries such as Germany. Without the help of the Eurosystem, such a massive withdrawal would have led to the immediate failure of Greek banks and economic standstill in Greece. In this situation, the Eurosystem has performed its role as lender of last resort, as it should

The Blessing of Cash

This study investigates the benefits of cash in a general context. First, we explicitly address the arguments of cash critics, who are calling for cash to be abolished altogether. Second, we show that cash plays a crucial role in the current two-tier banking system. Third, we are discussing a number of selected benefits of cash, inter alia its use in financial crisis and the provision of privacy. We conclude that the abolition of cash would have major drawbacks and could entail undesirable consequences

Money: A Market Microstructure Approach

The current discussion about the future of the financial system draws heavily on a set of theories known as the ‘New Monetary Economics’. The New Monetary Economics predicts that deregulation and financial innovation will lead to a moneyless world. This paper uses a market microstructure approach to show that a common medium of exchange that serves as unit of account will remain a necessary instrument to reduce transaction costs. This finding is supported by empirical evidence from foreign exchange markets

Sezession: Ein gefährliches Spiel

The problem posed by a potential exit from a political union or federation of states is not a new one. In the current crisis the potential exit from a monetary union is particularly relevant. Not long ago, potential exit has been an important topic in Canada. The analyses of the consequences of a potential exit of the province of Quebec can also be applied to the actual crisis of the European Monetary System. The results of the Canadian analyses show that exit involves the risk of major conflicts – even if both sides have strong preferences for a mutual agreement

The Pricing of Payments

The pricing of payments has received increasing attention of regulators. In many cases, regulators are concerned that consumers do not face cost based prices. They argue that without cost based prices consumers will make inefficient choices. In this paper, it is argued that both, economics of scale and the particular laws governing pricing in two-sided markets provide a case against cost based pricing