Stude On The Implications Of Electronic Mony On Money Supply And Monetary Policy

There are three phases during the development of currency, i.e., Commodity Money, Paper Money and Electronic Money, which is the outcome of the information revolution. The circulation of electronic money has made the substantial money depart from the concept money, transferring the real money into the virtual form. It can reduce the information and transaction costs significantly, and it's inevitable that the electronic money will eventually take the place of traditional paper money. With the occurrence and development of electronic money, there will be great challenges facing the traditional theories of money supply and monetary policy.Starting with giving a strict definition to the electronic money, this paper separates it from the"electronic instruments of payment", and analyzes its characteristics and differences with the traditional forms of money. This paper then studies the implications on base money and money multiplier of electronic money, and further analyzes the change of the total money supply. The conclusions are: with the appearance of electronic money, the base money will decrease, while the money multiplier will increase. So it's hard to tell the final effect on the total money supply. On this premise, this paper then considers the creation of electronic money, and gives a total money supply model of the society.With electronic money's substitution of base money and its influence on money supply, what will happen to the central bank's implementation of monetary policy and its independence? This paper discusses about these two points and gets some conclusions. For the implementation of monetary policy, the central bank should use interest rate as the intermediate target, rather than use money supply, in order to adapt to the development of electronic money. And as long as there are needs for the settlement service of the central bank, it can apply a new mechanism to the implement of the monetary policy, which is to provide a standby facility. By doing this, the central bank can effectively maintain its control over the interbank offer rate, and then further control the short-term and long-term interest rates. As to the Seigniorage Revenues, the impact is rather small in the western developed countries with the electronic money's substitution of cash in circulation. However, in China, cash plays a more important part in daily transactions, and the cash in use is the kind with smaller face value, which tends to be substituted by electronic money more easily. Thus, electronic money will take a heavier toll on Seigniorage Revenues in our country. If electronic money substitutes more than 50% of the cash in circulation, the Seigniorage Revenues will decrease more than one third.This paper also discusses the risks brought by this newly-emerged thing, summarizes the current situation of electronic money in many countries, and analyzes the supervision on it of these countries. Finally, this paper gives some suggestions to the central bank and its implementation of the monetary policy.