Electronic money and its impact on the role of the Central Bank in conducting monetary policy

Document Type : Original Article


1 Department of Economic and Management, Semnan University, Semnan, Iran

2 Ph.D. Candidate, Semnan University, Faculty of Economics, Management and Administrative Sciences


In line with technological developments in the field of information technology, the use of electronic money for transaction purposes is greatly increased. Substitution of electronic money with the notes issued by the central bank has risen the question to what extent this new phenomenon affects the central bank’s control on the money supply and the successful implementation of monetary policy. By analyzing the effects that using electronic money can have on the supply and demand for money, this article tries to assess the power of the Central Bank to control the money supply. For this purpose, we first specify a demand function for notes and coins in such a way that it contains a variable representing the increased usage of electronic money. Then we specify a money supply function (liquidity) at the time that electronic money is boosting. With the aid of co-integration methodology, both equations are estimated by ARDL method and using time series data for the period 1338 to 1391. The results show that the use of electronic money reduces the demand for notes and coins, shrinks the monetary base and limits the power of Central Bank in conducting monetary policy. On the other hand, it is seen that the money supply is expanded along with the increasing use of electronic money. This means that using electronic money reduces the power of the Central Banks to control the money supply and hence the implementation of a successful monetary policy is not feasible.


1- جعفری صمیمی، احمد و علیرضا عرفانی (1383)، آزمون خنثی بودن و ابر خنثی بودن بلند مدت پول در اقتصاد ایران، تحقیقات اقتصادی، شماره 67.
2- سهیلی، کیومرث، شهرام فتاحی و مهرداد جیحونی پور (1393)، اثرات جریان یافتن پول الکترونیک بر حجم اسکناس و مسکوک در گردش در ایران، پژوهش‌های اقتصادی، سال چهاردهم، شماره 1.
3- کهزادی نوروز و جعفر گچلو (1382)، آثار اقتصادی گسترش کاربرد پول الکترونیکی، با تأکید بر سیاست‌های پولی، برنامه و بودجه، شماره 83.
4- نوفرستی، محمد و ابوالفضل نوفرستی(1382)، برآورد تقاضای اسکناس و مسکوک به روش همجمعی در اقتصاد ایران، راهبرد، مرکز تحقیقات استراتژیک، شماره 29.
5- نوفرستی، محمد (1378)، ریشه واحد و همجمعی در اقتصادسنجی، چاپ چهارم، نشر رسا.
6- Arango, C., K. P. Huynh, B. Fung and G. Stuber. (2012). the Changing Landscape for Retail Payments in Canada and the Implications for the Demand for Cash, Bank of Canada Review, autumn.
7- Berentsen, A. (2002). Digital Money, Liquidity, and Monetary Policy", 1997, First Money.
8- Brunner, K. and Metzler, A. H. (1964). Some Further Investigations of Demand and Supply of Money, Journal of Finance, 19.
9- Freedman, C. (2000). Monetary Policy Implementation: Past, Present and Future – Will Electronic Money Lead to the Eventual Demise of Central Banking?” International Finance vol 2, no 3.
10- Friedman, Benjamin, M. (1999). The future of Monetary Policy: The central Bank as an Army with only a single Corpd? International Finance, vol 2, no 3.
11- Friedman, M & Schwartz, A. (1963) A Monetary History of United States, 1867- 1960, Princeton University Press, Princeton
12- Fujiki, H. & Tanaka, M. (2009). Demand for Currency, New Technology and the Adoption of Electronic Money: Evidence Using Individual Household Data, Bank of Japan, discussion Paper No. 2009-E-27.
13- Fung, B., Molico, M. and Stuber, G. (2012). Electronic Money and Payments: Recent Developments and Issues, Bank of Canada, Discussion Paper 2014-2.
14- Goodhart, C. (1989) the Conduct of Monetary Policy, Economic Journal, 99.
15- Goodhart, C (2000). Can central banking survive the IT revolution? International Finance, vol 3, no 2.
16- Helleiner, E. (1998). Electronic money: A challenge to the sovereign state? , Journal of International Affairs, Spring98, Vol. 51 Issue 2.
17- Komaromi, A. (2007). The Effect of the Monetary Base on Money Supply- Does the Quantity of Central Bank Money Carry any Information, MNB Bulletin.
18- Korbin, Stephen J. (1997). Electronic Cash and the End of National Markets, Foreign Policy No. 107.
19- Popovska-Kamnar, N., (2014). The Use of Electronic Money and Its Impact on Monetary Policy, JCEBI, Vol.1, No.2.
20- Stewart, D. (1996). The Future of Digital Cash on the Internet JIBC, (the journal of internet banking and commerce).
21- Woodford, M (2000): “Monetary policy in a world without money.” International Finance, vol 3, no 2.