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E-Money: Some Reflections on Regulatory Issues and Its Monetary Effects

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  • Carlos Budnevich L.
  • Sergio Lehmann B

Abstract

This paper analyzes regulatory issues related to electronic money, in particular the integrity of the payments svstem, consumer protection, and the effects on the overall economy. The paper develops a money demand model that shows how the introduction of electronic money affects the composition of money aggregates, causing higher intermediation and hence a larger money multiplier. Sterilization of the latter effect reduces seignorage collected by the central bank. The paper presents estimates for the loss of seignorage by the Central Bank of Chile for different scenarios regarding the degree of diffusion of electronic money. However the introduction of electronic money has important social benefits derived from lower transaction costs and improved efficiency and stability of the payments system.

Suggested Citation

  • Carlos Budnevich L. & Sergio Lehmann B, 1999. "E-Money: Some Reflections on Regulatory Issues and Its Monetary Effects," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 2(3), pages 041-058, December.
    • Handle: RePEc:chb:bcchec:v:2:y:1999:i:3:p:041-058
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