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Reassessing the ‘Threat’ of E–Money: New Evidence from the Euro Area

The ‘threat’ to monetary policy posed by e–money was a high profile issue at the turn of the millennium. This paper argues that the debate surrounding this issue, although largely resolved, has diverted attention from a number of important and less fanciful issues associated with the electronification of the payments system. These include the revival of the spectre of old–fashioned bank–runs, the threats to systemic security posed by unregulated offshore issuers and issues surrounding anonymity and the right to privacy. The extent to which these issues can be considered important depends upon the degree of usage of e–money products. A comparative analysis of the Euro Area and Singapore reveals that e–money usage remains minimal in most European countries, certainly in terms of total transaction value. Furthermore, a range of forecasting exercises indicate modest growth potential in the medium–term. These results lead to either of two conclusions. The reactionist view would hold that e–money usage is not widespread and that the current regulatory framework is, therefore, sufficient. The proactive view, by contrast, would ask whether the regulatory framework may be responsible for the slow uptake of the new technology and whether it could be revised to provide stronger incentives for all parties concerned.