Promoting Financial Inclusion by Encouraging the Payment of the Interest on E-Money

16 Pages Posted: 17 Jul 2017 Last revised: 13 Jul 2018

See all articles by Cheng-Yun Tsang

Cheng-Yun Tsang

College of Law, National Chengchi University

Louise Malady

University of New South Wales (UNSW) - Faculty of Law

Ross P. Buckley

University of New South Wales (UNSW) - Faculty of Law

Date Written: July 1, 2017

Abstract

Funds equal to the amount of e-money issued are typically held on trust with commercial banks, and called the float. This paper analyses the policy options of a central bank in relation to the interest earned on the float. Despite e money being an established payment method, many regulators still find the issue of whether to permit the payment of interest on it to customers troubling. The prohibition of, or failure to encourage, such payments is retarding the growth of many DFS ecosystems. Regulators have far more policy options than they typically appreciate in this regard.

As we explain, allowing interest payments does not make e-money equivalent to bank deposits because interest payments are not a defining feature of a bank deposit. Furthermore, allowing interest payments does not increase risks when, as is common, e-money providers are required to hold the float on trust with a prudentially regulated bank, or are only allowed to invest the float in very limited low-risk options. Furthermore, market conduct regulation can ensure adequate disclosure to customers such that customers are well aware of the risks of e-money. We present a number of policy approaches to promote the payment of interest to either providers or customers. Encouraging the payment of interest will promote digital payments and thereby improve financial inclusion and lift economic growth.

Keywords: e-money, commercial banks, central bank, payment of interest, regulators, market conduct regulation

Suggested Citation

Tsang, Cheng-Yun and Malady, Louise and Buckley, Ross P., Promoting Financial Inclusion by Encouraging the Payment of the Interest on E-Money (July 1, 2017). UNSW Law Research Paper No. 17-48. Available at SSRN: https://ssrn.com/abstract=3002925 or http://dx.doi.org/10.2139/ssrn.3002925

Cheng-Yun Tsang

College of Law, National Chengchi University ( email )

Taipei, 116
Taiwan

HOME PAGE: http://www.law.nccu.edu.tw/people/bio.php?PID=267

Louise Malady

University of New South Wales (UNSW) - Faculty of Law ( email )

Kensington, New South Wales 2052
Australia

Ross P. Buckley (Contact Author)

University of New South Wales (UNSW) - Faculty of Law ( email )

Sydney, New South Wales 2052
Australia

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