Electronic Money Is Too Soon to Replace Cash

Topics: Money, Electronic money, Central bank Pages: 4 (1430 words) Published: October 14, 2008
Before using “money” in transactions, people bartered for what they want. However, Barter transactions can only occur where there is a "double coincidence of wants", that the seller must have exactly the things that the buyer wants and the buyer must have something the seller wants in return. It is hard to find these double coincidences, since it is very difficult to find two persons who can suit each other’s wants exactly (Roth, Sönmez & Ünver, 2005), and people have to know the exchange prices of all the goods in order to trade. It makes trading difficult to carry out. To make trading simpler, people created “Money” as a medium of exchange and to measure the value of goods. After that, in order to help trading become more efficiently, money keeps evolving from shells and stones money in the ancient time to metal coins and paper currency nowadays. And there is a newest from of money, electronic money (E-money), started to develop quickly with its related products like prepaid card in 1993 (European Central Bank, 1998, p. 1). E-money refers to the money which is exchanged only electronically and “[e]lectronic money products are defined as stored value or prepaid products in which a record of the funds or value available to the consumer is stored on an electronic device in the consumer's possession” (Hong Kong Monetary Authority, 1996, p. 25). Heinrich and Mizuno (2000) stated that electronic money can help to make transactions easier and reduce the cost of customers and merchants, so it has the potential to take over cash in making small-value payments. And “[p]redictions of a cashless society have been around for decades” (Mishkin, 2007, p. 56). Also, Holland and Cortese (1995) note that using E-money “could change consumers' financial lives and shake the foundations of global financial systems”. These show that E-money has the potential to replace cash, and people believe in it. However, E-money is too soon to replace cash, since there are three...
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