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Monetary Policy, Monetary Areas, and Financial Development with Electronic Money

Marco Arnone and Luca Bandiera

No 2004/122, IMF Working Papers from International Monetary Fund

Abstract: Electronic money (e-money), as a network good, could become an important form of currency in the future. Such a development could affect monetary policy effectiveness. If an increased use of e-money substantially limits the demand for central bank reserves, this limitation would require changes in the central bank operational target and a closer coordination of monetary and fiscal policies. Also, the optimal size of monetary unions would be different. However, the current level of e-money use does not seem to pose a threat to the stability of the financial system. Thus, central banks can successfully implement the objectives of monetary policy.

Keywords: WP; debit card; e-money system; credit card; demand schedule; e-money product; financial system; legal tender (search for similar items in EconPapers)
Pages: 42
Date: 2004-07-01
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