A Study On The Effect Of Electronic Money On The Effectiveness Of Monetary Policy

The presence of theelectronic money impacted the current monetary theory andthe effectiveness of monetary policy. Firstly, it impacted the division of current strataof money. Secondly, the currentmonetary theory couldn’t explain the change ofmonetary demand and supply after the arising of the electronic money.Thirdly, theendogeneity of the electronic money affected both the monetary base and monetarymultiplier.Finally, the electronic money had an influence on the intermediate targets,the instruments and the conduction mechanism of monetary policy, which furtherwould influence the effectiveness of the central bank’s monetary policy.At the present period,the narrowly defined electronic money has become thefocus of various scholars in every country, which gives birth to some valuable theses.However, there were still lots of shortness mainly in two aspects. Firstly, most theseswere focused on the broadly defined electronic money, while the study of thenarrowly defined electronic money was scarce. Debit card and credit card included inthe broad sense were simply a representation of newer and more convenientinstruments of payment, rather than a new payment system. In essence, it was stilldependent on the current monetary system, leaving little influence on the monetarypolicy. In contract, thenarrowly defined electronic money was mainly referring tosmart card and digital cash, representing a new tool of payment of revolutionaryimportance. The payment of its fund was not depended on the funds transfer from thebank account, hence shocking the monetary system. Secondly, few of the currenttheses adopted the quantitative research method, though there were several thesesusing this method in the study of the broadly defined electronic money.Firstly, this paper developed a detailed argument in terms of monetary attribute,especially considering the doubt whether thenarrowly defined electronic money wasmoney. Because thenarrowly defined electronic money owned the most importantmonetary function of medium exchange and the function of measure of value andpayment were both included in the function of medium exchange, this thesis believed that narrowly defined electronic money was include in money. Secondly, it analyzedthe global current development status of the narrowly defined electronic money basedon the clear definition. Thirdly, it analyzed the influence of thenarrowly-definedelectronic money on the effectiveness of monetary policy in theory through themonetary policy tools, the conduction mechanism ofmonetary policy and the mediumtargets of monetary policy. Fourthly, it took advantage of empirical research on theeffect from the narrowly-defined electronic money on the short-term interest rate andmonetary multiplier. The research suggested that the narrowly-defined electronicmoneydidn’t raise the monetary multiplier, which suggested that it owned arelativelyweak capacity of monetary creation. In addition,it resulted into the raise of short-terminterest rate by influencing the monetary supply and demand.In the end, this thesis putforward relative monetary policy recommendations according to the acquiredconclusions about the impact from the narrowly-defined electronic money on themonetary policy.