Thursday, October 1, 2009

E-money Poses Problems for Central Bank

By Chen Yang
Global Times
Wednesday, September 30, 2009

The rapid development of electronic money and online payment challenges the traditional monetary system, and affects the central bank's monetary policies, said a senior official with the People's Bank of China (PBC) Monday.

The amount of cash in circulation reached 3.4 trillion yuan ($500 billion) last year, and the gross payment, the total amount of money exchanged in transactions nationwide, was 1.13 quadrillion yuan ($166 trillion) as of last December, according to Ouyang Weimin, director-general of the Payment System Department of the PBC.

The gross payment calculation includes multiple transactions using the same bills, therefore leading to large amounts of cash being counted multiple times.

"The gross payment has risen rapidly, but the cash in circulation has kept steady at around 3 trillion yuan ($441 billion) these past few years. This indicates a rapid increase in the use of electronic money and online payment," he said.

Electronic money, which is exchanged through Internet or other telecommunication channels, includes bank cards, shopping cards and prepaid cards.

Of the more than 10 trillion yuan ($1.5 trillion) in gross retail sales last year, electronic payment through bank cards reached 3 trillion yuan ($441 billion).

Compared with cash, electronic money has advantages such as lower cost and higher efficiency, said Ouyang.

"The cost of electronic money is just 35 percent of that of a cash payment."

However, it brings problems such as payment safety and supervision difficulties, Guo Tianyong, director of the Research Center of the Chinese Banking Industry at the Central University of Finance and Economics, told the Global Times.

The increasing amount of electronic money brings uncertainty to the PBC when it issues notes and implements monetary polices, he said.

"More than 1 trillion yuan ($147 billion) cash went into circulation in 2005. From this we can see the increasing liquidity, which may cause inflation, partly due to the frequent use of electronic payment," said PBC's Ouyang.

The PBC should be aware of the size of the electronic money and payment business, and adjust its monetary polices in order to prevent inflation, said Sun Lijian, deputy dean of the School of Economics at Shanghai-based Fudan University.

In April, the PBC launched its first investigation into the payment business of non-financial companies, including online payment services like, China's PayPal, virtual money providers like, and shopping malls and supermarkets issuing shopping cards.

The PBC asked these companies to register with them before July 31.

The PBC's move shows that it is very concerned about the electronic money and online payment business, said Qiu Changheng, vice president of, at a press conference in June.

Alipay is China's leading online payment service with more than 200 million users.

The investigation is beneficial to the development of the industry, Qiu said.

He said his company has reported their business to the PBC monthly since 2007, and asked the PBC for advice before they launched new businesses.

The PBC's Ouyang said electronic money has posed challenges to their monopoly on the issuance of notes.

"The PBC is not likely to monopolize electronic money, but it could implement a system to oversee electronic money issuance," said Ouyang.

"Although electronic currency has disturbed the traditional monetary system, its total amount is small compared with cash in circulation.

For the current stage, the PBC should focus on monitoring and researching electronic money and develop its technology to follow the trends," said Central University of Finance and Economics' Guo.

For the long term it should accelerate the integration of paper and electronic money, putting them together in a supervision system, he added.

1 comment:

  1. E-money is so widespread that it is likely to bring upheaval in traditional monetary system.....