April 13, 2004

The Bank of International Settlements (BIS) recently released the results of its 95-country/territory "Survey of developments in electronic money and Internet and mobile payments," published by its Committee on Payment and Settlement Systems.

The survey, conducted at the end of 2003, reveals that card-based e-money projects are "operating relatively successfully" in 34 countries, especially with schemes involving public transport, public telephones, parking meters and vending machines.

Although the numbers of cards issued and merchant terminals are "considerable," the report notes, "the outstanding e-money balances (float), as well as the volume of transactions, remain small in most cases."

Nevertheless, central banks are keeping a close watch on global developments in e-money -- as evidenced by the BIS survey. That's because there are legal, security and monetary policy issues on which e-money could have an impact.

Legal

The supervision and oversight of e-money payment systems has been taken up by several jurisdictions. Indeed, many regulators require scheme operators to have a license.

Notably, the "Eurosystem," consisting of the European Central Bank and the national central banks in the Eurozone, has issued two directives involving e-money institutions (ELMIs). The first Eurosystem directive creates a regulatory framework that limits the business activities of ELMIs, and creates "redeemability" provisions ensuring that customers can exchange e-money back into euros. The second directive makes credit-granting ELMIs subject to all of the relevant European Union rules for credit institutions.

Security

The survey highlighted several common measures taken by e-money issuers. Some, such as chip cards and encryption techniques, are part of the technology infrastructure. Other security measures consist of usage rules, such as limits on the amount of value that can be stored on a device, limits on the value for individual transactions and the requirement of a PIN for adding or transferring balances.

Monetary Policy

In monetary policy, rising e-money assets could have an impact upon the value of paper currency, short-term bank deposits and the seignorage revenues that currency-issuers realize from having foreign entities holding currency reserves.

But it would take an awful lot of transit cards to move the needle. "So far no central bank has indicated an adverse impact on the size of its balance sheet due to a decline in the value of the banknotes in circulation as a consequence of widespread adoption of e-money," the report states.

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