V. Conclusion

Designing an appropriate regulatory framework for e-money involves balancing different objectives including the system stability and security, financial integrity of the issuers, protection of consumers and the promotion of competition and innovation. Therefore, in general, the framework should be e-neutral. However, at the early stage, without any successful experience, authorisation and supervisory regime for e-banking and e-money would be similar to that for conventional banking service and products, just as HK has adopted,35 and it should be adjusted and readjusted following the development of e-money.

Regulatory authorities also face a choice concerning the timing of the introduction of any possible regulatory measures. On the one hand, establishing a comprehensive regulatory framework at an early stage would risk stifling innovation. Although Greenspan, the chairman of the Federal Reserve Board of the USA, recognized that in the current period of change and market uncertainty, there may be a natural temptation for the regulators and a natural desire on the part of some market participants, to have the government step in and resolve the uncertainty, through standards, regulation, or other government policies, he still stressed that as financial systems become more complex, detailed rules and standards have become both burdensome and ineffective, if not counterproductive. He argued that if we wished to foster financial innovation, we must be careful not to impose rules that inhibit it. To develop new forms of payment, the private sector will need the flexibility to experiment, without broad interference by the government. Hence, in the earlier period, industry participants may find that self-policing is in their best interest. 36

However, on the other hand, there may be a risk that the overall cost of regulation will be significantly higher were there to be a substantial delay in implementing measures that ultimately prove necessary, and existing regulatory framework could somehow inhibit desirable innovations by not adapting quickly enough. As Mr. Padoa Schioppa, of the Bank of Italy, has said, “the road to define a new institutional model must be different from the ones adapted in the past. At the beginning of this century, an agreement on how to manage a monetary system based on currency and deposits was only reached after a financial and monetary crisis. It would be extremely dangerous to pass through a similar learning process today, not least because payment systems in the industrialised world would amplify the problems of any single market operator, diffusing its effects to the whole economy?37

It is true that the regulation and supervision of e-banking and e-money is still at an early stage, like the product itself, and is still evolving. However, governments should not therefore adopt a wait and see approach towards legislating for it, which is especially true if you agree with the somewhat extreme view of David Saxton who claims “Digital cash is a threat to every government on this planet who wants to manage his own currency?/FONT>38

Reference:

1.Thomas P. Vartanian, The Future of Electronic Payments: Roadblocks and Emerging Practices, available at http://www.ffhsj.com/bancmail//bmarts/roadblck.htm
2.Thomas P. Vartanian, Key Question for Emerging Systems: Where is the Money?, Am. Banker, June 17, 1996, available in 1996 WL 5565107.
3.Thomas P. Vartanian, The Emerging Law of Cyberbanking: Dealing Effectively with the New World of Electronic Banking & Bank Card Innovations, available at http://www.ffhsj.com/bancmail/tpvcon.htm
Andreas Furche & Graham Wrightson, Computer Money: a Systematic Overview of Electronic Payment Systems, dpunkt, 1996
4.DICKIE, Internet and Electronic Commerce Law in the European Union, Hart Publishing, Oxford, 1999
5.Alan L Tyree, Virtual Cash ?Payments on the Internet, (1996) 7 Journal of Banking & Finance Law and Practice, 35, 139, 233
6.Alan L Tyree, Smart Card, (1995) 6 Journal of Banking & Finance Law and Practice, 297
7.The Federal Reserve Bank of Minneapolis, The History of Money, available at http://woodrow.mpls.frb.fed.us/econed/curric/history.html
8.Craig D Manson, Electronic Money And its Legal Implications Within The UK, available at http://www.electronic-money.co.uk/Diss2.htm
9.Olivier Hance and Suzan Dionne Balz, The New Virtual Money: Law and Practice, 423 Kluwer Law 1999
10.BIS Publications, Risk Management for Electronic Banking and Electronic Money Activities, March 1998, available at http://www.bis.org/publ/bcbs35.htm
11.Juergen Seitz and Eberhard Stickel, Internet Banking - An Overview, available at http://www.arraydev.com/commerce/JIBC/9801-8.htm
12.M Stathopoulos, Modern Techniques for Financial Transactions and their Effects on Currency: General and National Reports, Kluwer Law International (1995) 1
13.Randall W. Sifers, Regulating Electronic Money in Small-Value Payment Systems: Telecommunications Law as a Regulatory Model, available at http://www.taxi-l.org/emoney.htm
14.OLUJOK? E AKINDEMOWO, The Fading Rustle, Chink and Jungle: Electronic Value and the Concept of Money, UNSW Law Journal, available at http://www.law.unsw.edu.au/unswlj/ecommerce/akindemowo.html
15.2 Furash & Company, Banking's Role in Tomorrow's Payment System Overview 1, 29 (1994)
16.Carol Sergeant, E BANKING: RISKS AND RESPONSES, available at http://www.fsa.gov.uk/pubs/speeches/sp46.html
17.David Carse, The Regulatory Framework of E-banking, available at http://www.info.gov.hk/hkma/eng/speeches/speechs/david/speech_081099b.htm
18.Kelly Holland and Amy Cortese, The Future of Money, Business Week, June 1995
19.Loretta J. Mester, The Changing Nature of the Payments System: Should New Players Mean New Rules, Bus. Rev. (Fed. Res. Bank of Philadelphia), March/April 2000
20.D Stewart, The Future of Digital Cash on the Internet, J.I.B.C. available at http://www.arraydev.com/commerce/JIBC/9703-02.htm
21.HICKEY, E-commerce: Law, Business and Tax Planning, Jordans, Bristol, 2000
22.Robert Hettinga, Internet Banking and Commerce: Security, available at http://www.arraydev.com/commerce/JIBC/9601-2.htm
Alan Greenspan, Regulating Electronic Money, available at http://cato.org/pubs/policy_report/cpr-19n2-1.html
23.Mauro Cipparone, The Role of the Central Bank in the Growing Industry of Internet Payments, available at http://www.arraydev.com/commerce/JIBC/9605-6.htm

1 Davies Glyn, A history of money from modern times to the present day, 1996

2 M Stathopoulos, Modern Techniques for Financial Transactions and their Effects on Currency: General and National Reports, Kluwer Law International (1995) 1 at 3-11.

3 Geoffrey Turk, Money and Currency in the 21st Century, recited from Craig D Manson, Electronic Money And its Legal Implications Within The UK, available at http://www.electronic-money.co.uk/Diss2.htm

4 The Clearing House Interbank Payment Systems (CHIPS) is a private sector system owned and operated by the New York Clearing House Association, which is an online, real-time electronic payment system that transfers and settles transactions. See 2 Furash & Company, Banking's Role in Tomorrow's Payment System Overview 1, 29 (1994), at 3, 61-63.

5 The Society for Worldwide Interbank Financial Telecommunications (SWIFT) is a not-for-profit cooperative with headquarters in Brussels, Belgium. SWIFT is actually a financial messaging system rather than a payments system. The system facilitates interbank transfer of information but presupposes a separate system for effecting the payment. See id. at 2, 55-57.

6 Fedwire is a real time payments system operated by the Federal Reserve of the USA for financial institutions that have either reserve or clearing accounts at a Federal Reserve Bank. See id. at 2, 45-47.

7 Check truncation is a hybrid paper/wire transfer system that provides for the interruption of the transfer of the paper and the substitution for it by an electronic transfer. See id. at 13-16.

8 The ACH payment mechanism was established as an electronic alternative to the traditional paper based check collection system. Today it is used to conduct high volume repetitive transactions such as those involved in direct deposits, social security payments, and automatic bill-paying services. See id.

9 Thomas P. Vartanian, Key Question for Emerging Systems: Where is the Money?, Am. Banker, June 17, 1996, available in 1996 WL 5565107.

10 The Federal Reserve Bank of Minneapolis, The History of Money, available at http://woodrow.mpls.frb.fed.us/econed/curric/history.html (visited Oct. 8, 2000)

11 Randall W. Sifers, Regulating Electronic Money in Small-Value Payment Systems: Telecommunications Law as a Regulatory Model, available at http://www.taxi-l.org/emoney.htm (visited Oct. 18, 2000)

12 Draft Directive Article 1(3) 1.2(b)

13 Transcript of the Federal Reserve Board Consumer Advisory Council Meeting, Nov. 2, 1995 at 35.

14 Thomas P. Vartanian, The Future of Electronic Payments: Roadblocks and Emerging Practices, available at http://www.ffhsj.com/bancmail//bmarts/roadblck.htm

15 Mondex homepage http://www.mondex.com

16 VISA Cash homepage http://www.visa.com/pd/cash/main.html

17 DigiCash homepage http://www.digicash.com. Unfortunately the company collapsed in November 1999.

18 D Stewart, The Future of Digital Cash on the Internet, J.I.B.C. available at http://www.arraydev.com/commerce/JIBC/9703-02.htm

19 Loretta J. Mester, The Changing Nature of the Payments System: Should New Players Mean New Rules, Bus. Rev. (Fed. Res. Bank of Philadelphia), March/April 2000, at 3. See also Thomas P. Vartanian, Robert H. Ledig, & Lynn Bruneau, 21st Century Money, Banking & Commerce 286 (1998).

20 Kevin P. Sheehan, Electronic Cash, Banking Rev. (FDIC) 1 (Vol. II, No. 2 1998).

21 Thomas P. Vartanian, The Emerging Law of Cyberbanking: Dealing Effectively with the New World of Electronic Banking & Bank Card Innovations, available at http://www.ffhsj.com/bancmail/tpvcon.htm, recited from Jon Auerbach, Microsoft Now Seeks Friendly Footing with Nation's Big Banks, THE BOSTON GLOBE, Jan. 2, 1996, at 45.

22 Some argue that the money received by the issuer of an electronic purse is a bank deposit. It is indeed a claim which the card-holder (or account holder) has on a third party and which can be used to make cashless payments to a wide range of providers of goods and services. Such deposits contrast with deposits which are payments in advance for which the range of goods or services to be purchased is well defined and limited in scope. See Working Group on European Union Payments Systems, Report to the Council of the European Monetary Institute on Prepaid Cards 7 (1994). Recited from Randall W. Sifers, Regulating Electronic Money in Small-Value Payment Systems: Telecommunications Law as a Regulatory Model, available at http://www.taxi-l.org/emoney.htm. Some argue that non-account e-money actually constitutes a form of bond because e-money constitutes a promise that the electronic currency presented for payment, will be redeemed by the issuer, with the strength of such a promise depending on the reputation and financial situation of the issuer. See Hugh Piggot, Electronic Cash and Payment Systems: Digitising the Future. Recited from Craig D Manson, Electronic Money And its Legal Implications Within The UK, available at http://www.electronic-money.co.uk/Diss2.htm

23 Report to the Council of the European Monetary Institute on prepaid cards May 1994

24 Published May 1998, available at http://www.ecb.int/emi/pub/pdf/ar97/en_ar97.pdf.

25 Olivier Hance and Suzan Dionne Balz, The New Virtual Money: Law and Practice, 423 Kluwer Law 1999

26 61 Fed. Reg. 19,696 (1996).

27 Omnibus Consolidated Appropriations Act, 1997, Pub. L. No. 104-208, 2601, 1996 U.S.C.C.A.N. (110 Stat.) 1363.

28 Notice of FDIC General Counsel's Opinion No. 8, 61 Fed. Reg. 40,490 (1996).

29 Robert Hettinga, Internet Banking and Commerce: Security, available at http://www.arraydev.com/commerce/JIBC/9601-2.htm

30 Ibid.

31 Ibid.

32 1999/C 101/15

33 BIS Publications, Risk Management for Electronic Banking and Electronic Money Activities, March 1998, available at http://www.bis.org/publ/bcbs35.htm

34 Basel Committee on Banking Supervision published Electronic Banking Group Initiatives and White Papers in October 2000.

35 David Carse, The Regulatory Framework of E-banking, available at http://www.info.gov.hk/hkma/eng/speeches/speechs/david/speech_081099b.htm

36 Alan Greenspan, Regulating Electronic Money, available at http://cato.org/pubs/policy_report/cpr-19n2-1.html

37 Recited from Mauro Cipparone, The Role of the Central Bank in the Growing Industry of Internet Payments, available at http://www.arraydev.com/commerce/JIBC/9605-6.htm

38 See Kelly Holland and Amy Cortese, The Future of Money, Business Week, June 1995 at 66 (quoting David Saxton, Executive Vice President of Netl, an electronic check communications company)