The Future of Electronic Money ( case 1) - Essay Example

The Future of Electronic Money The use of electronic money is on the rise, linked with the increasing use of the internet and other forms of information technology. Electronic money comes in many forms, each of which have their own advantages and disadvantages, but the benefits of which generally include increased anonymity and faster transactions. In the next five years, it is likely that the use of electronic money will increase in line with the number of internet users and important advances in security (Jakobsson & Yung, 1996).

This will not eliminate the need for paper forms of money, which will remain useful in many contexts, but may contribute to a significant decrease in the number of paper money transactions. There are many viewpoints on whether paper money should be completely eliminated. However, it would seem fair to suggest that paper money will still have a number of uses and it would be impractical to rely completely on electronic forms of money. This is because of the problems that are generally associated with information technology, such as power failures and database overloads, which could cause a break in the system and would therefore necessitate the use of paper money (Khilawala, 2011).

It would be foolish to eradicate paper money completely whilst there is still a risk of these things happening. Paper money is also still popular with many. This is for a number of reasons. Firstly, if paper money were to be abolished, the government of that particular country would have to sell assets to ‘soak up the unwanted notes and coins’ (Rogoff, 2002, p2). It would mean a movement from the non-interest holding debt (cash) to interest holding debt (electronic money), which is an unappealing prospect for any government.

The public also seem to have an insatiable demand for paper money, with the main reason for this popularity being the anonymity of cash. This is useful for those committing money-based crimes, but also appeals to the innocent as well for a number of different reasons. It has been suggested that when the government is able to identify the holders of cash using DNA techniques, electronic money may then become as popular as paper money (Rogoff, 2002). Conversely, this does mean that electronic money may be more useful for crime-detection.

Despite this, there are a number of reasons why paper money is problematic. Governments may print off more paper money in anticipation of certain events as a way of controlling the economy (Jakobsson & Yung, 1996), but if this prediction is wrong then it may cause issues and as a result expand the public debt. This could also disturb international contracts due to the causation of fluctuations in exchange rates (Westerfield, 2011).Additionally, paper money has the problem in that it needs to be printed.

This costs governments millions of dollars annually, and could be avoided with the movement to electronic money.International transactions are one of the main beneficiaries of electronic money. Transactions can occur using the most recent currency exchange rate, ensuring that the transaction is fair and appropriate for all involved (Khilawala, 2011). Additionally, the currency can be instantly converted and usually requires no commission charge. Finally, electronic money has the benefit of being accepted worldwide (where appropriate) and therefore there are no issues with having to change currencies before travelling (Westerfield, 2011).

Electronic money is a worldwide currency.In conclusion, it is obvious that there are advantages and disadvantages to both systems and this is the primary reason why electronic money will not become the primary method of monetary transactions in the near future. However, as discussed above, there are reasons why it could be beneficial for many to move over to electronic money, so it is impossible to say whether any country may feel the need to dispense with paper currency at any point. The development of this issue is interesting and is being followed by many in the economic world.

Works CitedJakobsson, M., & Yung, M. (1996). Revokable and versatile electronic money. Proceedings of the 3rd ACM conference on Computer and communications security (pp. 76–87).Khilawala, R. (2011). Advantages and Disadvantages of Electronic Cash. Buzzle. Retrieved from http://www.buzzle.com/articles/advantages-and-disadvantages-of-electronic-cash.htmlRogoff, K. (2002). The Surprising Popularity of Paper Currency. Finance & Development, 39(1). Retrieved from http://www.imf.org/external/pubs/ft/fandd/2002/03/rogoff.

htmWesterfield, R. B. (2011). Banking Principles and Practice. Lightning Source UK Ltd.