[Dave Birch] Why are we all so interested in Japanese e-money statistics? Setting aside that when I say “we”, I of course mean “me”, it’s because of the clues it may contain to the evolution of electronic money in a rich mobile-centric environment. According to the Nomura Research Institutethe Japanese e-money market grew from 180 billion yen in 2006 to 690 billion yen in 2007, including EDY’s 100 billion yen share and Suica’s 50 billion yen share. The market is expected to be worth 2.8 trillion yen in 2011. With the spread of e-money, concerns have been raised that the money supply –one of the elements that the Bank of Japan uses to map out its monetary policy — may not reflect the actual state of the economy, as the money supply data does not include e-money (and nor, I suspect, does anyone else’s, although I’d love to hear from anyone who can prove me wrong).

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In the Japanese statistics the money supply in March was 80 trillion yen. Of this, only 4.5 trillion yen is currency from small-scale settlements, which is likely to be substituted by e-money. So e-money currently accounts for 180 billion of a 4.5 trillion market (ie, 4 percent). Hence one can only agree with Hideo Kumano, chief economist of the Dai-ichi Life Research Institute Inc, who said that

E-money is not likely to have an immediate influence on the central bank’s monetary policy in the near future.

How different to China, where non-existent e-money in virtual worlds is already, according to the government there, threatening monetary policy.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]

2 comments

  1. This is essentially what I argued in my 1996 monetary policy paper. The notion that monetary policy is negatively effected by digital money balances is extremely weak, and isn’t supported by any analysis that I have ever seen. On the other hand, the possibilities for central banks to impact digital money flows are quite large, by either normal monetary policy tools or by new regulatory tools.
    So, earlier fears were overblown. Where action was taken (e.g., the European eMoney Directive) the net result was the damage of lost opportunity (e.g., for Europeans).
    That is to take the monetary policy argument at face value, but there is a better explanation: simple competitive response to the DigiCash bogeymen of the world. The European banks asked the central banks to clamp down on the non-bank issuers of money, and found a willing ally in the Bundesbank, which had its own reasons to reserve money to the banks.
    What they didn’t know is that they — the banks — also would fail to roll out digital money on a wide scale, something that was easy to predict using a structural analysis (i.e., why are we now expecting mobile phone money to be the future). Hence, again as predicted, the Europeans are now in a catch-up phase against (foreign and domestic) non-bank issuers.
    [Dave Birch] Good points. I wonder if we’re about to make the same mistake with prepaid cards and over-regulate precisely when we need space for innovation.

  2. Your challenge: “With the spread of e-money, concerns have been raised that the money supply — … — may not reflect the actual state of the economy, as the money supply data does not include e-money (and nor, I suspect, does anyone else’s, although I’d love to hear from anyone who can prove me wrong).”
    The ECB actually collects monthly data on electronic money that is issued by Monetary Financial Institutions (MFIs) located within the euro area; see http://www.ecb.int/stats/money/aggregates/emon/html/index.en.html
    And the site says that “In accordance with Regulation ECB/2001/13 (…), the amount outstanding of electronic money issued by euro area MFIs is included within the balance-sheet item ‘overnight deposits’.
    [Dave Birch] Thanks for the ECB pointer. I just checked the Bank of England site and their M0 doesn’t include e-money — not that it matters, because e-money is so small. I wonder if “private” e-money such as Oyster prepaid value should be recorded somewhere by the ECB?

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