Electronic Money

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Electronic money (also known as electronic cash, electronic currency, digital money, digital cash or digital currency) refers to money or scrip which is exchanged only electronically. Typically, this involves use of computer networks, the internet and digital stored value systems. electronic funds transfer and Giro are examples of electronic money. Also, it is a collective term for financial cryptography and technologies enabling it.

While electronic money has been an interesting problem for cryptography (see for example the work of David Chaum and Markus Jakobsson), to date, use of digital cash has been relatively low-scale. One rare success has been Hong Kong's Octopus card system, which started as a transit payment system and has grown into a widely used electronic cash system. Another success is Canada's Interac network, which in 2000 at retail (in Canada) surpassed cash as a payment method. Singapore also has an electronic money implementation for its public transportation system (commuter trains, bus, etc), which is very similar to Hong Kong's Octopus card and based on the same type of card (FeliCa).

Alternative systems Technically electronic or digital money is a representation, or a system of debits and credits, used (but not limited to this) to exchange value, within another system, or itself as a stand alone system, online or offline. Also sometimes the term electronic money is used to refer to the provider itself. A private currency may use gold to provide extra security, such as digital gold currency. An e-currency system may be fully backed by gold (like e-gold and c-gold), non-gold backed (like eeeCurrency), or both gold and non-gold backed (like e-Bullion and Liberty Reserve).

Many systems will sell their electronic currency directly to the end user, such as Paypal and WebMoney, but other systems, such as e-gold, sell only through third party digital currency exchangers.

In the case of Octopus Card in Hong Kong, deposits work similarly to banks'. After Octopus Card Limited receives money for deposit from users, the money is deposited into banks, which is similar to debit-card-issuing banks redepositing money at central banks.

Some community currency, like some LETS systems, work with electronic transactions. Cyclos Software allows creation of electronic community currencies.

Ripple monetary system is a project to develop a distributed system of electronic money independent of local currency.

Virtual debit cards Various companies now sell Visa (company), Mastercard or Maestro (debit card) debit cards, which can be recharged via electronic money systems. This system has the advantage of greater privacy if a card provider is located offshore, and greater security since the client can never be debited more than the value on the prepaid card. Such debit cards are also useful for people who do not have a bank account. Generally cards can be recharged with either e-gold, e-Bullion, WebMoney, or via a wire transfer.

Advantages Most money in today’s world is electronic, and tangible cash is becoming less frequent. With the introduction of internet / online banking, debit cards, online bill payments and internet business, paper money is becoming a thing of the past.

Banks now offer many services whereby a customer can transfer funds, purchase stocks, contribute to their retirement plans (such as Canadian RRSP) and offer a variety of other services without having to handle physical cash or cheques. Customers do not have to wait in lines; this provides a lower-hassle environment.

Debit cards and online bill payments allow immediate transfer of funds from an individual's personal account to a business's account without any actual paper transfer of money. This offers a great convenience to many people and businesses alike.

Disadvantages Although there are many benefits to digital cash, there are also many significant disadvantages. These include fraud, failure of technology, possible tracking of individuals and loss of human interaction.

Fraud over digital cash has been a pressing issue in recent years. Hacking into bank accounts and illegal retrieval of banking records has led to a widespread invasion of privacy and has promoted identity theft.

There is also a pressing issue regarding the technology involved in digital cash. Power failures, loss of records and undependable software often cause a major setback in promoting the technology.

Privacy questions have also been raised; there is a fear that the use of debit cards and the like will lead to the creation of a global tracking system by the banking industry. Some people are working on anonymous ecash to try to address this issue. The issue of providing anonymity to users itself introduces more problems, however; there is the distinct possibility that a fully anonymous digital cash system could permit the "perfect crime" - i.e., where a criminal uses someone else's electronic cash to make a payment, but cannot be traced - to occur. For this reason, 'revokable anonymity' is a suggested solution: a user is fully anonymous until they commit some crime, at which point authorisation is given for their identity to be revealed. However, critics of this policy point out that the anonymous users will never be caught and held trial (thus their identity will never be revealed) without tracing.

Future evolution The main focuses of digital cash development are 1) being able to use it through a wider range of hardware such as secured credit cards; and 2) linked bank accounts that would generally be used over an internet means, for exchange with a secure micropayment system such as in large corporations (PayPal).

Furthering network evolution in terms of the use of digital cash, a company named DigiCash is at the focus of creating an e-cash system that would allow issuers to sell electronic coins at some value. When they are purchased they come under someone’s own name and are stored on his computer or under his online identity. At all times, the e-cash is linked to the e-cash company and all transactions go through it, so the e-cash company secures anything that is purchased. Only the company knows your information and will properly direct purchases to your location.

Theoretical developments in the area of decentralized money are underway that may rival traditional, centralized money. Systems of accounting such as Altruistic Economics are emerging that are entirely electronic, and can be more efficient and more realistic because they do not assume a zero-sum transaction model.

See also

Digital gold currency
Private currency
Ripple monetary system
Anonymous internet banking
Cypherpunks
Mon€o
Visa Cash
Mondex
Qpass
ISO 8583
Automated Clearing House (ACH)
Scrip

External links

Untraceable Digital Cash, Information Markets, and BlackNet by Timothy C. May
Principles for a free, powerful and stable monetary system for the digital era by S. Poirier
Flood Control on the Information Ocean: Living With Anonymity, Digital Cash, and Distributed Databases by Michael Froomkin
Status Report on Free Market Money from The Indomitus Report
Money Transfer Worldwide
The Evolution of Money

Electronic Money, or E-Money, and Digital Cash
Links to information sources on electronic money and digital cash, descriptions of systems, benefits, problems and dangers.

Monetary History, the Present & Future of Money
Information sources on monetary history, types and politics of money, alternative systems of exchange, financial scandals, the Internet and economics.

Electronic money - Wikipedia, the free encyclopedia
Electronic money (also known as e-money, electronic cash, electronic currency, digital money, digital cash or digital currency) refers to money or scrip which is exchanged only ...

Electronic Money Directive
HM TREASURY IMPLEMENTATION OF THE ELECTRONIC MONEY DIRECTIVE A Consultation Document OCTOBER 2001

HM TREASURY
IMPLEMENTATION OF THE ELECTRONIC MONEY DIRECTIVE PREFACE This consultation document seeks views on proposed legislative measures for implementing the Electronic Money Directive ...

Money Page - UK Finance in a Nutshell
None of the information contained in this website constitutes, nor should be construed as Financial Advice.

The Electronic Money (Miscellaneous Amendments) Regulations 2002
Statutory Instrument 2002 No. 765. The Electronic Money (Miscellaneous Amendments) Regulations 2002

Electronic money: Perimeter guidance
The FSA invites comments on this Consultation Paper. Comments should reach us by 30 May 2003. Comments may be sent by electronic submission using the form on the FSA's website ...

FSA Register
Small E-Money Issuer Certificates Issuing e-money is a regulated activity under article 9B of the Regulated Activities Order (RAO). Under articles 9C to 9G of the RAO, the holder ...

BBA – British Bankers' Association - 3: Electronic money
Note: This sectoral guidance is incomplete on its own. It must be read in conjunction with the main guidance set out in Part I of the Guidance.