Monetary Policy, Monetary Areas, and Financial Development with Electronic Money

43 Pages Posted: 15 Feb 2006

Date Written: July 2004

Abstract

Electronic money (e-money), as a network good, could become an important form of currency in the future. Such a development could affect monetary policy effectiveness. If an increased use of e-money substantially limits the demand for central bank reserves, this limitation would require changes in the central bank operational target and a closer coordination of monetary and fiscal policies. Also, the optimal size of monetary unions would be different. However, the current level of e-money use does not seem to pose a threat to the stability of the financial system. Thus, central banks can successfully implement the objectives of monetary policy.

Keywords: electronic money, monetary policy, monetary unions

JEL Classification: E40, E42, E50, F33

Suggested Citation

Bandiera, Luca, Monetary Policy, Monetary Areas, and Financial Development with Electronic Money (July 2004). IMF Working Paper No. 04/122, Available at SSRN: https://ssrn.com/abstract=878946

Luca Bandiera

World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

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