Electronic money takes a variety of forms both online and offline, with the
possibility oftruedigitalcashlooming in the future. Views of the impact of electronic money on monetary policy are as varied. With the amount of electronic money still small compared to other forms, the effect on monetary policy is not yet fully determinable.
However, central banks and economists must try to anticipate the effects before it becomes more significant. This paper contributes to that effort by summarizing the range of views and the likely effect various forms of electronic money will have.
INTRODUCTION
Electronic money takes a variety of forms both online and offline, with the possibility of true digital cash looming in the future. Viewsoftheimpact of electronic money on monetary policy are as varied. At one extreme is the opinion that the monetary policy implications of electronic money are nil. At the other is the possibility of a substantial effect, even to the elimination of monetary policy. Yet, even if their currencies are unlikely to be wholly replaced by digital creations, central banks cannot afford to ignore the effects of such technology.
With the amount of electronic money still very small compared to other forms, the effect on monetary policy is not yet absolutely determinable. However, the central banks and economists must try to anticipate the effects before it becomes more significant. This article contributes to that effort by examining various forms of electronic money, summarizing the range of views, and discussing the likely effects of electronic money on several aspects of monetary policy.
WHAT IS ELECTRONIC MONEY?
The European Central Bank provides a good concise definition of electronic money: “electronic money is broadly defined as an electronic store of monetary value on a technical device that may be widely used for making payments to undertakings other than the issuer without necessarily involving bank accounts in the transaction, but acting as a prepaid bearer instrument”. [European Central Bank,2000]We should note that "technical device" does not necessarily mean physical device. While some, such as smart cards, are physical, it includes internet based systems as well. A key element is that paymentsusing it must be accepted by entities other than the issuer. Thus, prepaid phone cards, for example, would not be considered electronic
money. Electronic funds transfer systems are already in commonuse. When a customer pays for a purchase with a debit card, the amount may be electronically taken from the customer's account and transferred to the merchant's account. In other
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