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

Stefan Schmitz

Macroeconomics from University Library of Munich, Germany

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.

Keywords: Electronic money; Carl Menger; Origin of Money; Austrian Economics (search for similar items in EconPapers)
JEL-codes: E42 B13 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2002-11-18
New Economics Papers: this item is included in nep-ifn
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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