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Regulatory Issues in Electronic Money: A Legal-Economics Analysis

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    Abstract

    In this paper we examine regulatory issues relating to electronic money. The discussion proceeds along three main lines. Firstly, the focus of attention on the potential risks to the financial system is typically on the systemic risk arising from the payments system. Since issuers of electronic money automatically become part of the payments system, we consider if the arguments relating to systemic risk originating in the payments system apply in the case of electronic money. Secondly, we examine the sharp divergence in regulatory approaches between the US and the EU, and suggest that a useful way of reconciling this divergence is to note the existence of a tradeoff between the efficiency of the financial system and the amount of risk assumed by the public sector. This means that there is not necessarily a 'correct' answer to the question of the desirability of regulation. Thirdly, technological advances and financial innovations have made it easier for firms to engage in regulatory arbitrage. Competitive pressures may have encouraged financial centres to engage in competitive deregulation, resulting in a less than socially optimal level of regulation overall. It is therefore important that national authorities coordinate and harmonise their regulatory policies.

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    File URL: http://www.uow.edu.au/content/groups/public/@web/@commerce/@econ/documents/doc/uow012246.pdf
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    Bibliographic Info

    Paper provided by School of Economics, University of Wollongong, NSW, Australia in its series Economics Working Papers with number wp98-02.

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    Length: 31 pages
    Date of creation: 1998
    Date of revision:
    Handle: RePEc:uow:depec1:wp98-02

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    Postal: School of Economics, University of Wollongong, Northfields Avenue, Wollongong NSW 2522 Australia
    Phone: +612 4221-3659
    Fax: +612 4221-3725
    Web page: http://business.uow.edu.au/econ/index.html
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    Keywords: REGULATION ; ELECTRONIC MONEY ; FINANCIAL SYSTEMS;

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    1. Selgin, G.A. & White, L.H., 1993. "How Would the Invisible Hand Handle Money?," Papers 380e, Georgia - College of Business Administration, Department of Economics.
    2. Dowd, Kevin, 1996. "The Case for Financial Laissez-Faire," Economic Journal, Royal Economic Society, vol. 106(436), pages 679-87, May.
    3. Wolfgang HÄRDLE & J. MARRON & L. YANG, 1996. "Discussion," SFB 373 Discussion Papers 1996,65, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
    4. Richard Dale, 1996. "Regulating the New Financial Markets," RBA Annual Conference Volume, in: Malcom Edey (ed.), The Future of the Financial System Reserve Bank of Australia.
    5. Benston, George J & Kaufman, George G, 1996. "The Appropriate Role of Bank Regulation," Economic Journal, Royal Economic Society, vol. 106(436), pages 688-97, May.
    6. Gilles Oudiz & Jeffrey Sachs, 1984. "Macroeconomic Policy Coordination among the Industrial Economies," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 15(1), pages 1-76.
    7. Gerald P. O'Driscoll, Jr., 1988. "Deposit Insurance in Theory and Practice," Cato Journal, Cato Journal, Cato Institute, vol. 7(3), pages 661-681, Winter.
    8. Franklin R. Edwards & Frederic S. Mishkin, 1995. "The Decline of Traditional Banking: Implications for Financial Stabilityand Regulatory Policy," NBER Working Papers 4993, National Bureau of Economic Research, Inc.
    9. David Folkerts-Landau, 1990. "The Case for International Coordination of Financial Policy," NBER Chapters, in: International Policy Coordination and Exchange Rate Fluctuations, pages 279-306 National Bureau of Economic Research, Inc.
    10. Robert Litan & William Isaac & William Taylor, 1994. "Financial Regulation," NBER Chapters, in: American Economic Policy in the 1980s, pages 519-572 National Bureau of Economic Research, Inc.
    11. William H. Branson & Jacob A. Frenkel & Morris Goldstein, 1990. "International Policy Coordination and Exchange Rate Fluctuations," NBER Books, National Bureau of Economic Research, Inc, number bran90-1.
    12. Thomas M. Hoenig, 1997. "Bank regulation: asking the right questions," Economic Review, Federal Reserve Bank of Kansas City, issue Q I, pages 5-10.
    13. repec:wop:humbsf:1996-65 is not listed on IDEAS
    14. Thomas M. Hoenig, 1996. "Rethinking financial regulation," Economic Review, Federal Reserve Bank of Kansas City, issue Q II, pages 5-13.
    15. Laureano Escudero & M. Ortuño & V. Campos & Reinhardt Euler & Michael Jünger, 1996. "Discussion," TOP: An Official Journal of the Spanish Society of Statistics and Operations Research, Springer, vol. 4(1), pages 54-64, June.
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