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

_IMF Working Papers, July 1, 2004_

## Source details

**Canonical URL:** [Monetary Policy, Monetary Areas, and Financial Development with Electronic Money](https://www.imf.org/en/publications/wp/issues/2016/12/30/monetary-policy-monetary-areas-and-financial-development-with-electronic-money-17415)

## Other formats

- [Markdown version](/en/publications/wp/issues/2016/12/30/monetary-policy-monetary-areas-and-financial-development-with-electronic-money-17415/index.md)
- [Structured JSON version](/en/publications/wp/issues/2016/12/30/monetary-policy-monetary-areas-and-financial-development-with-electronic-money-17415/index.json)
- [Bundle manifest](/en/publications/wp/issues/2016/12/30/monetary-policy-monetary-areas-and-financial-development-with-electronic-money-17415/bundle-manifest.json)

## Bibliographic details
- Authors: Marco Arnone, Luca Bandiera
- Published: July 1, 2004
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451854527.001

---

### Overview and key findings
- Electronic money (e-money), characterized as a network good, could become an important form of currency in the future.
- Increased use of e-money 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.
- The optimal size of monetary unions would be different under substantial e-money adoption.
- At the current level of e-money use, there does not seem to be a threat to the stability of the financial system.
- Conclusion: central banks can successfully implement the objectives of monetary policy given current e-money usage.

### Policy implications and recommended adjustments
- Monitor e-money adoption as a potential driver of reserve demand reduction.
- Prepare contingency frameworks to:
  - revise central bank operational targets if reserve demand falls substantially, and
  - strengthen coordination mechanisms between monetary and fiscal authorities.
- Re-evaluate monetary-union design parameters (optimal size) in light of possible widespread e-money adoption.

### Analytical themes and scope
- Focus on interactions among:
  - monetary policy effectiveness,
  - monetary-area (monetary union) optimal size, and
  - financial development with electronic money.
- E-money treated in the analysis as a network-good phenomenon influencing currency form and demand for central bank liabilities.

---

## Content in this bundle

- **_wp04122**
  - [_wp04122 (Markdown version)](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2004/_wp04122.pdf.md){rel="alternate" type="text/markdown"}
  - [_wp04122 (PDF)](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2004/_wp04122.pdf){rel="external" type="application/pdf"}

---

_Source: https://www.imf.org/en/publications/wp/issues/2016/12/30/monetary-policy-monetary-areas-and-financial-development-with-electronic-money-17415_