E-Money and Electronic Payments System Quiz

Commodity Money

• Commodity money has intrinsic value, meaning it has value even outside of its use as money.

Saving Cigarettes

• Individuals may be willing to save cigarettes in a context where cigarettes are used as a form of money because they represent a store of value that can be used for future transactions.

Disadvantage of Electronic Money

• A disadvantage of electronic money is the risk of system failure or hacking, which could lead to the loss of funds.

Preceding Paper Currency

• The use of paper currency is likely to be preceded by the use of precious metals as a form of money.

Legal Tender

• Fiat money is declared legal tender by governments, which means it is accepted as a valid form of payment for debts and taxes. However, it's not convertible into coins or precious metals.

Government Obligations

• When paper currency is decreed as legal tender, governments must legally accept it as payment for taxes and other public dues.

Financial Innovation's Impact on Monetary Policy

• Recent financial innovation has made it more difficult for the Federal Reserve to conduct monetary policy, as it becomes harder to measure the money supply and predict the impact of policy changes.

Defining Money

• Defining money becomes increasingly challenging as the pace of financial innovation quickens, due to the emergence of new forms of payment and financial instruments.

Monetary Aggregates

• Monetary aggregates are measures of the money supply that represent a particular definition of money.

Narrowest Monetary Aggregate

• The narrowest monetary aggregate reported by the Fed is M1.

Currency Component of U.S.M1 Money Supply

• The currency component of the U.S.M1 money supply includes physical currency like paper bills and coins.

Components of U.S.M1 Money Supply

• The components of the U.S.M1 money supply include:
  • Currency
  • Traveler's checks
  • Demand deposits
  • Other checkable deposits

Form of E-Money

• Stored-value cards are considered a form of e-money.

Smart Card and Traditional Currency

• A smart card is equivalent to a prepaid debit card in terms of traditional currency.

Persistence Of Paper Payments

• The paper payments system has not been completely replaced by electronic payments systems due to factors like:
  • Lack of access to technology in some areas
  • Security concerns
  • Resistance to change

Transition to Electronic Payments

• The transition to a system where all payments are made electronically is slowed down by factors like:
  • Infrastructure development
  • Consumer adoption
  • Security concerns

Non-E-Money Payment Method

• Credit cards are classified as non-e-money payment methods.

Differentiating E-Money

• E-money is differentiated from traditional physical currency because it exists solely in electronic form and does not have intrinsic value.