The future of electronic money: a regulator's perspective

Abstract

Will electronic money become the new medium of exchange, or will it be confined to just a few special niches? Money has three functions in society, and how well electronics serves these functions will determine its future. First, money is a unit of account, or a way to measure and record value. Second, it is a way to store value conveniently for future use. Finally, it is a medium of exchange. For money to fulfil these three functions, it must satisfy certain requirements. It should be easily and broadly recognizable and hard to fake (counterfeit), its value should be reasonably stable, and it should be durable and not deteriorate. Finally and crucially, it should be convenient and inexpensive to use. How will electronics fit into this matrix of functions and requirements? The products being developed today fall into two groups, and it is important to distinguish between them because only one of them is a new form of money. Those referred to as electronic banking do not represent a new kind of money, but rather offer a new way to access a number of traditional bank services with traditional money. Such activities as bill paying and shifting funds among accounts over a telephone or computer connection belong here. The many emerging types of stored value cards and other media, however, do create a new money, as they represent an alternative to government issued or guaranteed instruments. In stored value systems, the liability of the issuer is recorded directly on the card, and a corresponding deposit account is not necessarily maintained for the individual card holder.