Monetary policy implications of electronic currency: an empirical analysis

Abstract

Using the 2001 Survey of Consumer Finances, evidence is found that electronic currency is not a substitute for demand deposits: electronic currency ownership is associated with holding higher balances in checking accounts. These findings allay concerns that private sector issuance of electronic currency will inhibit the ability of central banks to conduct monetary policy.

Acknowledgements

We are grateful to Julio Videras and Stephen Wu for helpful comments.

Notes

Evidence for this point can be seen in the numerous speeches, publications, and reports by economists and officials at central banks and international banking agencies. See, for example, Bank for International Settlements (1996), European Central Bank (1998), Meyer (2001), or Organisation for Economic Cooperation and Development (2002).

Kennickel and Kwast (1997) explore the determinants of smartcard ownership using a different strategy.

Specifically, to determine how educated the ‘household’ is, we use the education level of the most educated person in the household.

In most cases in the SCF, the male is arbitrarily coded as the head of the household so a dummy for the sex of the head of the household is not meaningful.

Not all EBT cards are based on the computer chip technology, but the magnetic stripe cards perform the same services as the computer chip cards and the distinction is not important for this study. When we remove welfare recipients from our sample, we obtain similar results.