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The Institutional Character of Electronic Money Schemes: Redeemability and the Unit of Account

Author

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  • Stefan W. Schmitz

    (Austrian Academy of Sciences)

Abstract

A number of commentators have argued that technological innovation is about to change the institutional structure of the retail payments system. Through the potential private issue of currency via new electronic payments systems – electronic money – individuals will create currencies based on units of account different from the dominant unit of account in the respective market. Thereby, the efficiency of the retail payments system would be enhanced. The following paper, however, denies the desirability of the parallel use of multiple units of account and the feasibility of competition in fiat-type currencies. The recent literature and Menger’s views on the subject are surveyed. Furthermore, the question is analyzed from an evolutionary point of view based on the interpretation of new electronic payments systems as networks The strategic incentives for issuers and users of currency to switch from the existing dominant unit of account to an alternative one are discussed. It is concluded that new electronic payments systems will provide redeemability on demand and that they will not diminish the role the national currencies as the dominant unit of account without specific regulation interfering in the their evolution.

Suggested Citation

  • Stefan W. Schmitz, 2002. "The Institutional Character of Electronic Money Schemes: Redeemability and the Unit of Account," Macroeconomics 0211009, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpma:0211009
    Note: Type of Document - Word for Mac; prepared on Mac; pages: 35. substantially revised version published in M. Latzer & S. W. Schmitz (eds.), Carl Menger and the Evolution of Payments Systems: From Barter to Electronic Money, Edward Elgar, Cheltenham 2002
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/mac/papers/0211/0211009.pdf
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    References listed on IDEAS

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    1. Nicholas Economides, 1997. "The Economics of Networks," Brazilian Electronic Journal of Economics, Department of Economics, Universidade Federal de Pernambuco, vol. 1(0), December.
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    Cited by:

    1. Malte Krueger & Charles Goodhart, 2001. "The Impact of Technology on Cash Usage," FMG Discussion Papers dp374, Financial Markets Group.
    2. Helmi Hamdi, 2007. "Some Ambiguities Concerning the Development of Electronic Money," Financial Theory and Practice, Institute of Public Finance, vol. 31(3), pages 293-307.
    3. Mikael Stenkula, 2003. "Carl Menger and the network theory of money," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 10(4), pages 587-606.

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    Keywords

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    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Systems; Standards; Regimes; Government and the Monetary System
    • B13 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - Neoclassical through 1925 (Austrian, Marshallian, Walrasian, Wicksellian)

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