Report on electronic money
Today the European Central Bank (ECB) published a report entitled "Report on Electronic Money" (pdf 213kB).
The Report deepens the analysis of the implications of prepaid cards conducted by the European Monetary Institute (EMI) in 1994 and extends it to new forms of electronic money, i.e. software-based electronic money products which have since started to evolve. The main results of the study have already been published in the Opinion of the EMI Council on the issuance of electronic money, which is contained in Chapter III of the EMI Annual Report 1997.
Although electronic money is not a widespread phenomenon at present, it is likely to have significant implications for monetary policy in the future. In this regard, it must be ensured that, in particular, price stability and the unit-of-account function of money are not put at risk. There are a number of additional regulatory concerns regarding electronic money which also have to be taken into account, such as the efficient functioning of payment systems and confidence in payment instruments, the protection of customers and merchants, the stability of financial markets and protection against criminal abuse.
With a view to ensuring monetary policy effectiveness and a level playing-field and in order to address the regulatory concerns outlined above, the ECB regards it as essential that the following minimum requirements be fulfilled:
- issuers of electronic money must be subject to prudential supervision;
- issuance must be subject to solid and transparent legal arrangements, technical security, protection against criminal abuse and the reporting of monetary statistics;
- issuers of electronic money must be legally obliged to redeem electronic money against central bank money at par at the request of the holder of the electronic money; and
- the possibility must exist for the ECB to impose reserve requirements on all issuers of electronic money.
In addition to the minimum requirements outlined above, the interoperability of electronic money schemes and the adoption of adequate guarantee, insurance or loss-sharing schemes are two further objectives which it is deemed desirable to pursue.
Against this background and in line with the EMI's 1994 Recommendation, the most straightforward solution would be to limit the issuance of electronic money to credit institutions as this would avoid changing the existing institutional setting for monetary policy and banking business. Moreover, it would ensure a level playing-field for all issuers of electronic money. The ECB acknowledges that the definition of "credit institution" in the First Banking Co-ordination Directive (1BCD) requires an institution to "receive deposits or other repayable funds from the public and grant credit for its own account". The ECB would see great merit in pursuing an amendment to the 1BCD so as to extend its scope of application to cover those institutions issuing electronic money which do not fall within the current definition of "credit institution". As a transitional provision until the 1BCD is amended, the ECB would accept a solution whereby those institutions already issuing electronic money, but which do not fall within the definition of "credit institution" laid down in the 1BCD, could continue to offer domestic payment services, provided that they were subject to the regulations laid down in the "Report on Electronic Money", but excluding, for the time being, reserve requirements (which can only be imposed on credit institutions as defined in the 1BCD).
Public authorities should ensure that electronic money schemes meet the minimum requirements set out in the Report. Two functions, namely payment systems' oversight conducted by central banks and prudential supervision, will contribute to the pursuit of this objective. Overseers and supervisors should co-operate closely in order to exploit possible synergies.
Given the world-wide aspects of the issuance of electronic money, in particular if it is to be transferred via telecommunications networks such as the Internet (network money), which carries the risk of delocation, the ECB emphasises the need for international co-ordination in this field.
The Report will be distributed by each of the EU national central banks to interested parties in their respective countries. It is also available from the ECB at the following address: