Visa’s Amazon Blues Will Shape the Digital Cash Debate

This is just one tradeoff among several. Think of how banks’ card business might be impacted by the arrival of central bank digital currencies, or CBDCs. You decide to buy a book on Kindle, using your brand-new credit card. Before you’ve drawn down your credit line, the lender’s balance sheet — in the words of Stanford University economist Monika Piazzesi — is “empty” and free. (If you’d used a debit card, the bank would have required a deposit from you, and a loan asset on the other side of its balance sheet before you bought the book. It would have entailed costs.) When you pay by credit card, the bank creates a deposit liability in Amazon’s favor, automatically backed by an asset: what you owe the bank. It is this “complementarity between deposits and credit lines,” Piazzesi says, “that makes it cheap for banks to handle these payments.”

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