Challenge of Electronic Currency on the Functions of the Central Bank

The emergence of electronic currency is the second revolution in monetary history. It not only shakes the banking money creation system in which central bank plays a key role, but also challenges the traditional functions of the central bank in that system. First, gradual increasing circulation of the electronic currency will aggravate competition in monetary issue, then weaken the corresponding function of the central bank. Second, the expansion of electronic currency will set a still higher demand on central bank's supervisory level, and require a more strict supervision on non-banking financial institutions. Third, electronic currency will influence the controllability, measurability and relativity of the money supply, which will probably bring about a change in the medium target of monetary policy from money supply to interest rate.