Brownbag Seminar（2022-01）

Topic:  The Liquidity Premium of Digital Payment Vehicle

Speaker: Zefeng Chen, Peking University

Time: Friday, March 4, 12:00–1:00 PM Beijing Time

Location: Room K02, Guanghua Building 2

Abstract:

Do digital payment technologies create a liquidity premium as currencies and Treasury debt do? We provide an estimate in the context of the world's largest digital payment platform Alipay, whose transaction volume in 2020 was over twice of China's GDP. Our empirical strategy exploits the variation in the timing of introduction of money market funds which users on this platform can hold and directly use for digital transactions. We find that, once a fund becomes eligible for these transactions, its size rises by 42 times on average over the course of one year. Through the lens of a simple model of imperfect competition across funds, this size increase maps to a liquidity premium between 1.0% and 1.7% per annum and a consumer surplus of 420 RMB (65 U.S dollars) per user per quarter.

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