CBDCs, Payment firms, and Geopolitics by Tobias Berg, Jan Keil, Felix Martini & Manju Puri

Central Bank Digital Currencies (CBDCs) are still a hot topic, according the Atlantic Council: more than 100 countries, representing 98% of global GDP, are exploring central bank digital currencies.

This working paper by the National Bureau of Economic Research (NBER) explores the effects of a digital euro on the payment industry.

Abstract
We analyze the effect of a major central bank digital currency (CBDC) – the digital euro – on the payment industry to find remarkably heterogeneous effects. Stock prices of U.S. payment firms decrease, while stock prices of European payment firms increase in response to positive announcements on the digital euro. Bank stocks do not react. We estimate a loss in market capitalization of USD 127 billion for U.S. payment firms, vis-à-vis a gain of USD 23 billion for European payment firms. Our results emphasize the medium-of-exchange function of CBDCs and point to a novel geopolitical dimension of CBDCs: enhanced autonomy in payments. 

The National Bureau of Economic Research (NBER) is a private, nonprofit organization that facilitates cutting-edge research on and analysis of major economic issues. It is nonpartisan and refrains from making policy recommendations, focusing instead on providing background studies and data that underlie decision-making in both the public and private sectors. (source nber.org)

The payment industry (cfr. The Pay Off book) is notoriously dominated by U.S. incumbents, namely Visa and Mastercard. Even with large local players such as Adyen,  Klarna, Worldline, etc., EU citizens are largely dependent on these US payment networks to execute our global cross-border (card) payments.

A digital euro (CBDC) is an 'obvious' solution to this problem; it entirely side-steps current card payment networks.

Another initiative to bolster the autonomy of the European payment network(s) is the European Payments Initiative (EPI) with its digital wallet app Wero. You can find a great write-up about EPI and Wero  here: Wero set to disrupt European payments (Checkout.com)

Photo by Paul Fiedler on Unsplash