Background
Electronic money, also referred to as “e-money,” represents funds that are stored digitally and transferred electronically over computer networks. Unlike traditional forms of currency, such as coins and paper bills, electronic money exists purely within electronic systems.
Historical Context
The origins of electronic money can be traced back to the late 20th century, concurrently with advancements in digital technologies and the increasing accessibility of the internet. The proliferation of personal computers and mobile devices, coupled with the development of sophisticated encryption technologies, has paved the way for the evolution of e-money.
Definitions and Concepts
Electronic money constitutes any form of currency that is stored electronically or digitally and can be transferred through computer networks. This includes a variety of forms, such as debit cards, credit cards, online bank accounts, and digital wallets. E-money is a vital component of the modern financial ecosystem, facilitating seamless transactions across the global economy.
Major Analytical Frameworks
Classical Economics
Classical economists, centering on tangible currency and commodities like gold and silver, provided the foundation upon which modern monetary theory is built but did not anticipate the digitization of money.
Neoclassical Economics
Building on classical economics, neoclassical models express utility and predict market outcomes. E-money fits into these models as an advance towards reducing transaction costs and increasing economic efficiency.
Keynesian Economics
Keynesian economics would recognize electronic money insofar as it influences consumption, investment, and the overall economy by affecting liquidity and velocity of money in the financial system.
Marxian Economics
From a Marxian standpoint, electronic money could be analyzed in the context of capitalist modes of production. It may be viewed critically as a further abstraction of value and a tool for global capitalism’s expansion.
Institutional Economics
Institutional economists would study the legal and regulatory frameworks surrounding e-money, focusing on how institutions shape and are shaped by financial innovations such as electronic money.
Behavioral Economics
Behavioral economists would observe how the shift to e-money affects consumer and merchant behavior, exploring psychological factors such as spending illusions and loss aversion linked to non-physical money.
Post-Keynesian Economics
From a Post-Keynesian perspective, the emphasis might be on examining how electronic money fits within broader financial stability issues and its potential to alleviate or exacerbate economic crises.
Austrian Economics
Austrian economists could emphasize concerns regarding centralized control of monetary supply through electronic means, favoring decentralized digital currencies as alternatives.
Development Economics
Development economists emphasize the potential of electronic money to enhance financial inclusion, particularly in developing regions where traditional banking infrastructure is lacking.
Monetarism
Monetarists would be interested in how electronic money impacts the control of money supply and influences monetary policy effectiveness.
Comparative Analysis
Contrast between traditional fiat currency and electronic money involves examining the pros and cons of digitized transactions, including increased efficiency and security considerations versus issues of privacy and potential cyber threats.
Case Studies
Examples include PayPal’s rise as a digital payment platform, the adoption of M-Pesa in Kenya for financial inclusion, and the impact of cryptocurrencies like Bitcoin as forms of electronic money.
Suggested Books for Further Studies
- “Digital Cash: The Unknown History of the Anarchists, Utopians, and Technologists Who Created Cryptocurrency” by Finn Brunton
- “Money, Payment Systems and the European Union: The Regulatory Challenges of Digital Currencies” by Dimitris N. Chorafas
- “The End of Banking: Money, Credit, and the Digital Revolution” by Jonathan McMillan
Related Terms with Definitions
Cashless Economy: An economic state where financial transactions are conducted without the use of physical cash, relying instead on electronic forms of payment like e-money.
Cryptocurrency: A type of digital or virtual currency that uses cryptography for security and operates independently of a central bank.
Digital Wallet: A software-based system that securely stores users’ payment information and passwords for numerous payment methods and websites.
