Electronic money: new day or false dawn?

The era of electronic money will soon be upon us. What will the advent of electronic money mean for the capacity of central banks to sustain price stability and promote growth? This article begins with a basic primer on the essential characteristics of electronic money: what it is, how it operates, and what it is likely to look like in the future. The rise of electronic money, it is clear, is no anomaly in historical terms and indeed may be regarded as an entirely natural development in the context of today's rapidly globalizing world economy. Analysis suggests that the challenge of e-money differs significantly depending on what countries we are talking about. In the many economies around the world where central bankers are already experiencing increased difficulty in controlling monetary aggregates, owing to accelerating cross-border competition among currencies, the main impact of electronic money will be simply to add to the intensity of that competition. By contrast, in the traditional reserve centres - the US, 'Euroland' (home of the new euro), and Japan - the threat to state power appears distinctly greater and will demand real adjustments by policymakers.