Should the Central Bank Issue E-Money?

Abstract

Should a central bank take over the provision of e-money, a circulable electronic liability? We discuss how the e-money technology changes the tradeoff between public and private provision, and the tradeoff between e-money and central bank's existing liabilities like banknotes and reserves. The tradeoffs depend on i) the technological setup of the e-money system (as a token or an account; centralized or decentralized); ii) the potential improvement in the implementation and transmission of monetary policy; iii) the risks to safety and privacy from cyber attacks; and iv) the uncertain impact on banks efficiency and financial stability. The most compelling argument for central banks to issue e-money is to address competition problems in the banking sector.

Keywords: central bank digital currencies, e-money, cryptocurrencies, token- and account-based payment payments

JEL Classification: E42, E51, E58