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 e-money technology changes the trade-off between public and private provision, and the trade-off between e-money and a central bank’s existing liabilities such as bank notes and reserves. The trade-offs depend on the technological setup of the e-money system (as a token or an account; centralized or decentralized); the potential improvement in the implementation and transmission of monetary policy; the risks to safety and privacy from cyber attacks; and 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 systems