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What Are The Advantages And Disadvantages Of Electronic Money

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Due to the increase of E-money, economists claims that E-money could replace currency (paper money and coins),so a lot of research have been made to study the impact of this advance in payment system and what could be its effect on the central bank's control over the money supply. However, because the control of money supply is achieved through doing some measurements, such as the M1 method which is used to calculate the most liquid items such as currency, traveler's checks ,and demand deposits. The use of E-money will cause a decrease in these variables ,therefore, the central bank will lose its ability to measure the money in the economy, thus, losing the ability to control money supply. (El-Gawady)

In fact, electronic currency is used …show more content…

E-money and Monetary policy To be able to see the effect of the use of E-money on the monetary policy, first we should study the concept of monetary base, the monetary base is the currency held outside the banking systems (currency in circulation) and reserves. So if the E-money is used it will cause a shrink in the monetary base. Taken in to consideration, that the declining in the demand of money will not cause a direct effect on the monetary policy; because the monetary policy is responsible for the supply and demand of reserves only. (El-Gawady)

But on the other hand, E-money has a direct effect on the monetary system stability because e-money can't be supervised by the monetary public authorities which may lead to bad performance in the payment system causing harm to the financial markets as a whole. And E-money also has a direct effect on the monetary policy targets, because electronic cards will be considered a monetary substitution, as the purchasing power will be considered as a bank deposits. In addition, electronic cards will be used as if it is a real money, therefore, we could name it "creation of money" as long as the demand for it increases, turning the E-money to a lawful money. …show more content…

(El-Gawady)

E-money can impact the following

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