Futurists have been speculating about the prospects for a cashless society for many years, and such predictions became more frequent following the introduction of "smart" cards - cards containing a computer chip - in the mid-1970s. One smart-card application of particular interest to central banks is the electronic purse or wallet, which carries a preloaded monetary value and can be used as a means of payment for multiple small-value purchases. This report provides an overview of current major electronic purse projects and other prepaid card applications around the world and examines selected policy issues. It is possible that electronic purses will be used to reduce the cost of small-value transactions. Although implementation of the innovation has been slow because of high start-up costs and uncertainty regarding acceptability of the device to the average consumer, a large number of purse trials are under way around the world. The soundness of both electronic purse products and their issuers could be a matter of interest to central banks and other financial regulatory bodies. Furthermore, national governments may stand to lose a substantial amount of revenue associated with the issuance of coinage and paper currency. The magnitude of such revenue losses would be difficult to estimate, however, both because of limited quantitative understanding of the various current uses of bank notes and because of uncertainty as to the relative attractiveness of electronic purses to consumers and merchants. While it is doubtful that physical currency will fall into disuse in the foreseeable future, growing familiarity with smart-card technology and the substantial reductions in the unit production costs of smart cards in recent years have nevertheless improved the prospects for a feasible electronic replacement for cash. The report concludes that over the next few years, the use of smart-card technology for single-purpose prepaid cards and for debit and credit cards is likely to become more widespread in Canada. Electronic purses may take somewhat longer to come into general use, given that substantial changes will be required both in the payments habits of consumers and in the payments infrastructure of financial institutions and retailers.
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Paper provided by Bank of Canada in its series Technical Reports with number
74.
Find related papers by JEL classification: E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money G20 - Financial Economics - - Financial Institutions and Services - - - General
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