What are the effects of electronic transactions and banking upon the industry and/or monetary policy? Have innovations created greater or less efficiency? What has been the role of the Federal Reserve?
Over the past decades, there is no developed as rapidly as computer technology and electronic communications. Nowadays information technology and especially the Internet is widely used in business. Advances in information technology have made possible the emergence of modern payment systems using the latest advances in this field and allowing to carry out bank payments without leaving your home, pay at the store and a plastic card to purchase products via the Internet. With the development of modern payment systems related to the emergence of the so-called "electronic" or "digital" money (electronic money, electronic cash, digital cash).
The purpose of this project - a definition of electronic money, taking into consideration all the features of their operation, consider the direction of the impact of electronic money to the financial system and to analyze the possible measures to ensure the stability of money markets in the spread of e-money, and to know more about the role of the Federal Reserve in connection with e-transactions.
The concept of electronic money and the benefits of their use
To analyze the impact of electronic money on the monetary system and the identification of the main consequences of their wide distribution, it is first necessary to clearly define the notion of e-money, in order to distinguish payment systems that use electronic money from other systems and to distinguish electronic money from the whole set of financial products. Questions related to the operation of electronic money, actively discussed since the mid 90s. During this time, the term "electronic money" has become widely used in the scientific community, reflected in a number of official documents and entrenched in law. However, there are different approaches to the understanding of the term "electronic money" in different sources.
Thus, electronic money, on the one hand, are regarded as reserve cash value stored in electronic form on a device and can be circulated in the form of a payment system as means of payment. This approach to the definition of electronic money as a monetary value, which has a specific shape associated with a storage technology that value (in this case - in electronic form), can be described as technological.
If the electronic money is issued by a non-bank entity, then the effect requires further analysis. When the non-bank issuer receives a bank deposit in exchange for its electronic money, there is an initial increase in the money supply – a change in who holds the deposit plus the new electronic money. When the issuer then uses the deposit to buy interest bearing securities, the effect depends on who is on the other side of the transaction. If it is a non-bank holder of the securities, there is no further effect - again just a change in who holds the deposit. If the counter-party is a bank, deposits disappear, offsetting the increase in the money supply, but freeing reserves for the creation of additional money. If the counter-party is the central bank, then it both eliminates the deposits and soaks up the reserves, completely offsetting the creation of the new electronic money. (Griffith, R., n.d.)
The main advantage of the electronic money is much lower in cost as compared with the transaction in cash and checks. Thus, maintenance of cash turnover in developed countries costs 2.3% of GDP. In the US alone the annual cost retailers and banks to manage cash (accounting, storage, transportation, and security) is 60 billion dollars. According to leading economists electronic money, such as smart cards can significantly reduce these costs. At the same time "network money" can save significant costs of non-cash payments. Ease