Electronic Money and the Future of Central Banks

1. What examples of electronic funds transfer and electronic money does the article discuss? Explain how each example works.

2. How would a switch to using only privately issued electronic money affect the Fed?

3. How have computer and telecommunications technology affected banks’ holdings of reserves and excess reserves? How might technology affect the holding of bank deposits and reserve requirements? Why?

4. In a world in which private forms of electronic money compete with central bank money, what advantages would central bank money have and how could central banks continue to influence interest rates?

5. How does the Fed’s approach to electronic money differ from that of the European Central Bank?

6. Do you think inflation would be more or less likely if central bank money was replaced completely by privately issued money? Why?

Source: “Electronic Money and the Future of Central Banks.” Ed Stevens, Federal Reserve Bank of Cleveland Economic Commentary, March 1, 2003, pp. 1-4.