As we move forward, incidents such as the Covid-19 pandemic demonstrate the importance of having access to multiple means of payment. With the growth of digital payment options, the topic of e-money and its economic impact has increasingly come into academic focus. The aim of this bachelor thesis is therefore to summarize the current state of research on digital currencies and to provide new insights into their impact on payments and monetary policy. This study concentrates mainly on the European market with a particular emphasis on the Eurozone.
Using recent literature and academic studies, a literature review examines the impact of digital currencies on monetary policy. Further, this paper develops and demonstrates new insights about digital currencies in a quantitative empirical study. The quantitative analysis was chosen in order to obtain measurable values for comparison. From this, the following research question can be derived: How could digital currencies potentially impact electronic payments
and monetary policy in the Eurozone?
Following the introduction, chapter two provides the reader with a comprehensive and in-depth examination of theoretical foundations. To this end, the terms currency and money are clarified, and different payment systems are discussed. In addition, business models based on companies are presented, as well as monetary policy and the ECB are explained in more detail. After the theory section, the third chapter covers the approach, the empirical method, and the data collection and analysis procedures. Subsequently, chapter four presents the research results to provide an answer to the research question. The fifth chapter deals with the discussion, including hypothesis testing. The final section completes the thesis with a conclusion.
Table of Contents
- 1 Introduction
- 1.1 Objective
- 1.2 Structure
- 2 Theoretical background
- 2.1 Currencies
- 2.1.1 Physical money
- 2.1.2 Digital currencies
- 2.1.3 Implementation of digital currencies
- 2.2 Payment systems
- 2.2.1 Classical payment systems
- 2.2.2 Electronic payment systems
- 2.2.3 Security and data protection
- 2.3 Business model
- 2.3.1 Banks
- 2.3.2 Paypal
- 2.3.3 Apple Pay
- 2.4 Monetary policy
- 2.4.1 Organization structure and responsibilities of the ECB
- 2.4.2 Money supply
- 2.1 Currencies
- 3 Methodology
- 3.1 Hypotheses
- 3.2 Research approach
- 3.3 Data set and preparation
- 3.4 Research Quality
- 3.5 Python (Tool)
- 3.6 Weaknesses
- 4 Analysis
- 4.1 Pearson correlation
- 4.2 Sample presentation
- 4.3 Correlation Matrix
- 4.4 Test of Significance
- 4.5 Regression Analysis
- 4.5.1 DGP - CPT
- 4.5.2 DGP - BAC
- 4.5.3 DGP - M1
- 4.6 Literature analysis
- 4.6.1 Advantages and disadvantages
- 4.6.2 Pilot project digital yuan
- 5 Discussion
- 5.1 Hypotheses Testing
- 5.2 Scope and limitations
- 6 Conclusion
Objective & Thematic Focuses
The primary objective of this bachelor thesis is to summarize the current state of research on digital currencies and to provide new insights into their impact on payments and monetary policy, with a particular emphasis on the Eurozone. The core research question addressed is: "How could digital currencies potentially impact electronic payments and monetary policy in the Eurozone?"
- Analysis of various types of digital currencies, including cryptocurrencies and Central Bank Digital Currencies (CBDCs).
- Examination of the evolution, advantages, and challenges of electronic payment systems.
- Investigation of monetary policy implications for the Eurozone, focusing on the European Central Bank (ECB) and money supply.
- Application of a mixed-methods research approach, combining quantitative analysis with a qualitative literature review.
- Study of business models of key payment service providers (e.g., PayPal, Apple Pay) and banks in the context of digital transformation.
Excerpt from the Book
Digital currencies
Bech and Garratt (2017) created a taxonomy "Money Flower" to classify several examples of money that would fit into the Venn diagram (see figure 2.1). It is based on four primary characteristics: First, accessibility, whether it is public or restricted. Second, it includes issuance, whether it comes from a private issuer or a central bank. Next, the form as physical or digital money is differentiated. And finally, the type of technology being an account-based or token-based system. The definition and differentiation between account-based and token-based systems is elaborated in the chapter discussing the implementation of digital currencies. The money flower also has the potential to incorporate future forms of money. Bitcoin, for example, belongs to the category of cryptocurrencies, which is electronically and universally accessible peer-to-peer money. Commodity money includes precious metal coins. A private mobile payment platform from Africa, M-Pesa, belongs to the category of "bank deposits, mobile money", which is electronically universally accessible and will be briefly reviewed later. The Venmo company also uses a similar model of a digital wallet. It enables users to deposit money into the wallet and transfer it between other participants.
Many different types of digital currencies already exist, of which some of them are still in their initial stages. As a matter of fact, they all exist exclusively in electronic form (Curry; 2021). Today, for instance, CBDCs and cryptocurrencies are firmly under discussion. They are growing in popularity because of the pandemic and China's global dominance in issuing digital central bank money E-CNY as part of its pilot project. This involves piloting an electronic version of China's legal tender, the Renminbi, in several major cities. The goal of that project is to improve monetary inclusion and enhance the efficiency of transactions in the country's financial system. Research on this began in 2014 and the test phase in April 2020. A Deutsche Bank study found that CBDCs will eventually someday replace private cryptocurrencies and become the standard in the long run (Laboure; 2021).
In 2008 the pseudonymous programmer Satoshi Nakamoto initially offered a solution for the double-spending problem in his white paper, which proposed a digital currency and protocol system that enables electronic peer-to-peer transactions without relying on trust. This system combines an open ledger with a cryptographic algorithm by using a blockchain built on nodes of independent computers. It serves as a replacement for a trusted third party such as banks. The decentralized distributed ledger governs and validates all transactions and ownership verification. Nakamoto's blockchain technology is an open-source, tamper-proof and decentralized concept and ideal for storing and processing sensitive information as it relies on a Proof-of-Work system. On each chain, transactions are stored in chronological order in a transparent and immutable manner. This means that every database instance has a record of all transactions performed on the network, which includes the hash value of the previous block, a timestamp, and transaction-specific details. Then there is Bitcoin BTC, a digital currency token running on the blockchain system (Nakamoto; 2019).
Summary of Chapters
Chapter 1: Introduction: This chapter introduces the thesis, highlighting the acceleration of digital payments due to the Covid-19 pandemic and the rise of cryptocurrencies, setting the stage for the research objective and structure.
Chapter 2: Theoretical background: This section provides a comprehensive theoretical foundation on currencies (physical, digital), payment systems (classical, electronic, security), business models (banks, PayPal, Apple Pay), and monetary policy, including the structure and responsibilities of the ECB and the concept of money supply.
Chapter 3: Methodology: This chapter outlines the research design, including the general and specific hypotheses, the mixed-methods research approach, details on the data set and its preparation, criteria for research quality, the Python tool used for analysis, and identified weaknesses of the study.
Chapter 4: Analysis: This section presents the research results, covering Pearson correlation analysis, sample presentation of data (M1, crypto adoption, digital payments), the correlation matrix, tests of significance, regression analysis for various variables, and a literature review on CBDC advantages, disadvantages, and the digital yuan pilot project.
Chapter 5: Discussion: This chapter discusses the results of the hypotheses testing, affirming most hypotheses related to the impact of digital currencies on electronic payments and monetary policy, while also addressing the scope and limitations of the research.
Chapter 6: Conclusion: This final chapter summarizes the overall findings, confirms the general hypothesis that digital currencies influence electronic payments and monetary policy, and reiterates that the study successfully answers the research question despite its limitations, laying a foundation for future research.
Keywords
Digital currencies, electronic payments, monetary policy, Eurozone, cryptocurrencies, Central Bank Digital Currencies (CBDCs), payment systems, blockchain, Pearson correlation, mixed-methods approach, financial stability, European Central Bank (ECB), cash usage, data protection, digital euro, Bitcoin.
Frequently Asked Questions
What is this work fundamentally about?
This work fundamentally explores the potential impact of digital currencies on electronic payments and monetary policy specifically within the Eurozone, analyzing current trends and future implications for the financial landscape.
What are the central thematic fields?
The central thematic fields include the types and evolution of digital currencies (cryptocurrencies, CBDCs, e-money), various electronic payment systems, the business models of financial institutions and payment providers like PayPal and Apple Pay, and the role of monetary policy as exercised by the European Central Bank.
What is the primary objective or research question?
The primary objective is to summarize existing research and provide new insights into the impact of digital currencies on payments and monetary policy in the Eurozone. The core research question is: "How could digital currencies potentially impact electronic payments and monetary policy in the Eurozone?"
Which scientific method is used?
The study employs a mixed-methods approach, combining quantitative empirical analysis (e.g., Pearson correlation and regression analysis for hypotheses 1-4) with a qualitative literature review (for hypothesis 5, focusing on the digital euro).
What is covered in the main part?
The main part covers a comprehensive theoretical background on currencies, payment systems, business models, and monetary policy, followed by a detailed analysis section that includes Pearson correlation, sample presentation, correlation matrix, test of significance, regression analysis, and a literature review on CBDC advantages, disadvantages, and the digital yuan pilot project.
Which keywords characterize the work?
Key terms characterizing the work are digital currencies, electronic payments, monetary policy, Eurozone, cryptocurrencies, CBDCs, payment systems, blockchain, central banks, and financial stability.
How does the "Money Flower" taxonomy help classify digital currencies?
The "Money Flower" taxonomy helps classify various forms of money by considering four primary characteristics: accessibility (public or restricted), issuance (private or central bank), form (physical or digital), and technology (account-based or token-based system), offering a structured way to understand the diverse landscape of digital currencies.
What challenges do commercial banks face due to the emergence of CBDCs?
Commercial banks face the challenge of potential disintermediation, where a shift from traditional bank deposits to CBDC wallets could reduce their assets and balance sheets. This may force them to increase deposit rates or seek alternative funding, potentially altering the banking system's structure.
What was the main finding regarding the correlation between digital payments and the European money aggregate M1?
The study found a low positive correlation between digital payments and the European money aggregate M1. This indicates that an increase in electronic payments statistically corresponds to an increase in the money supply M1, confirming that M1 influences digital payments.
What is the "controllable anonymity" concept employed in China's digital yuan pilot?
The "controllable anonymity" concept for China's E-CNY aims to balance user privacy by allowing anonymous transactions between parties, while simultaneously enabling government-owned banks to track transaction information to combat corruption, money laundering, and terrorist financing.
- Citation du texte
- Diana Breidenbach (Auteur), 2021, Potential Impact of Digital Currencies on Electronic Payments and Monetary Policy in the Eurozone, Munich, GRIN Verlag, https://www.grin.com/document/1245611
