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Are on-line currencies virtual banknotes?

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  • Stephen F. Quinn
  • William Roberds

Abstract

The history of money is marked by innovations that have expanded the role of "inside money"-money created by the private sector. For instance, the past few years have seen the development of several types of on-line payment arrangements, some of which have been dubbed "on-line currencies." ; This article examines the likely success or failure of on-line currencies by means of a historical analogy. The discussion compares the introduction of on-line currencies to the debut of the bearer banknote, the direct predecessor to modern currency, in London in the late 1600s. ; The key innovation of the earliest banknotes, the authors argue, was to provide final payment under circumstances in which extant payment systems could not. The discussion considers how on-line currencies may be able to fill the same role in the context of e-commerce. ; The authors note some conspicuous similarities between on-line currencies and physical banknotes. Both payment methods emerged to meet the need to conduct remote transactions (via the Internet or across physical distance), both face the risk of buyer-side fraud, and both have responded to the need for a new payment technology to allocate this risk. The authors stop short of calling on-line currencies "virtual banknotes" because it remains to be seen whether on-line currencies will gain sufficiently widespread acceptance to become a circulating medium of exchange.

Suggested Citation

  • Stephen F. Quinn & William Roberds, 2003. "Are on-line currencies virtual banknotes?," Economic Review, Federal Reserve Bank of Atlanta, issue Q2, pages 1-15.
  • Handle: RePEc:fip:fedaer:y:2003:i:q2:p:1-15:n:v.88no.2
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    File URL: http://www.frbatlanta.org/filelegacydocs/erq203_roberds.pdf
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    References listed on IDEAS

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    1. Quinn, Stephen, 1997. "Goldsmith-Banking: Mutual Acceptance and Interbanker Clearing in Restoration London," Explorations in Economic History, Elsevier, vol. 34(4), pages 411-432, October.
    2. Stacey L. Schreft, 2002. "Clicking with dollars : how consumers can pay for purchases from E-tailers," Economic Review, Federal Reserve Bank of Kansas City, issue Q I, pages 37-64.
    3. Kenneth N. Kuttner & James J. McAndrews, 2001. "Personal on-line payments," Economic Policy Review, Federal Reserve Bank of New York, issue Dec, pages 35-50.
    4. John H. Munro, 1998. "English 'Backwardness' and Financial Innovations in Commerce with the Low Countries, 14th to 16th centuries," Working Papers munro-98-06, University of Toronto, Department of Economics.
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    Cited by:

    1. DeGennaro, Ramon P., 2005. "Market imperfections," Journal of Financial Transformation, Capco Institute, vol. 14, pages 107-117.
    2. Stephen F. Quinn & William Roberds, 2008. "The evolution of the check as a means of payment: a historical survey," Economic Review, Federal Reserve Bank of Atlanta.

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    Keywords

    Money ; Internet ; Payment systems;

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