Improving the security of electronic money in the digital age
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Improving The Security Of Electronic Money In The Digital Age

Scenarios Illustrating Electronic Money’s Importance

Picture yourself ready to buy your morning latte, only to encounter a glitch with your electronic money wallet card, or find that the payment app on your phone won’t open due to the payment service provider declaring bankruptcy. Imagine residing in a remote location where the sole connection to the financial system is through an electronic money service on your phone. Additionally, contemplate a scenario where government operations, such as benefit transfers or tax collections, heavily rely on an electronic money system.

Types of Digital Currencies

Types of Digital Currencies

Various types of digital currencies—such as central bank digital currencies, privately issued stablecoins, and electronic money—are constantly developing and integrating into daily life. Digital currency essentially mirrors traditional currency but is endorsed by the creator. Users exchange cash for digital currency, enabling quick and convenient transactions through a smartphone app, for personal or business purposes. Dissimilar to other newly emerged types of virtual currency, like stablecoins, e-money has existed for quite some time and its user community is expanding quickly. And unlike most stablecoins from private issuers, e-money works within a regulated framework.

Regulatory Challenges in Electronic Money

Regulators and supervisors face a formidable task in safeguarding consumers and maintaining fairness among financial players, staying abreast of advancements is no small feat. Inspectors and overseers must analyze methods to enhance safeguarding individuals from insolvency of electronic money providers, potentially those that could affect the entire system, to avoid financial losses for the customers.

IMF Study: Recommendations for Regulation

A new study by IMF staff raises this and other scenarios that could put consumers and (potentially) all electronic money systems at risk. We analyze the evolution of regulatory practices in different countries and present a set of policy recommendations to regulate electronic money issuers and protect their clients’ funds.

Electronic Money and Financial Inclusion

We can think of e-money as an electronic store of monetary value contained in a prepaid card or electronic device, often a mobile phone, which can be used to make payments on a widespread basis. The stored value also represents an enforceable right against the issuer of the electronic money, whereby its customers can request the refund of the funds they used to purchase the electronic money at any time.

Case Study: Electronic Money Adoption in East Africa

Electronic money is already a fundamental part of the daily lives of billions of people, especially in many developing countries, where many lack access to the banking system. As shown in the graph below, a high percentage of the population in several East African countries uses electronic money, making it important from a macro-financial perspective. For example, it is estimated that two-thirds of the combined adult population of Kenya (where M-PESA has achieved high market penetration), Rwanda, Tanzania and Uganda regularly use electronic money. Many of these people do not have bank accounts or other access to the formal financial system, so they store a significant portion of their available funds in electronic money wallets that they access through mobile phones or computers.

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