The Influence Of The Development Of Electronic Payment To The Central Bank's Monetary Policy Research

The development of electronic payments is a general trend since it has suchobvious advantages as swifter, more convenient, more efficient and less costlycompared with traditional paper-based payments. The emergence and development ofelectronic payments not only changed the payment methods and payment habits of thepeople, but also posed a challenge to traditional monetary theory and the theory of thecentral bank. With their unique advantages, electronic payments changed people’sholding of financial assets in terms of the form and structure, and they had a certainimpact on the size and structure of money supply, money multiplier and the velocityof money circulation as well, which will in turn influence the central bank’s ability indeveloping proper monetary policy and implementing it effectively.Based on the money supply and demand theory, the theory of the central bank,the theory of deposit money banks, this paper aims to give a thorough and systematictheoretical analysis of the impacts that electronic payments may bring about on thecentral bank’s monetary policy formulation and implementation, and to make anempirical analysis of the impacts of electronic payments on monetary policy fromdifferent aspects by selecting relevant data about electronic payments, money supply,interest rates and GDP, so as to explore the laws governing the operation of monetarypolicy and specific monetary policy implementation pathways in the context ofelectronic payments development.The main contents and conclusions of this study are as follows:Firstly, this paper analyzes the impacts of the development of electronicpayments on the money issuance authority of the central bank. This study finds thatcurrent electronic money used worldwide as electronic payment methods are basicallytraditional currency substitutes, which do not constitute a real threat to the centralbank’s money issuance authority, but with the further development of electronicpayments, electronic money is likely to endanger the central bank’s currency issuanceauthority.Secondly, this paper explores the impacts of the development of electronicpayments on the cash in circulation. It argues that the development of electronicpayments will produce currency substitution effect. However, the current currencysubstitution effect is mainly reflected in growth substitution, that is, the growth ofelectronic payments partially substitutes the growth of cash in circulation with fastergrowth rate. With the further development of electronic payments, it is possible thatthe absolute amount of cash in circulation will be on the fall in the future.The third issue is about the impact of the development of electronic payments onmonetary base and money multiplier. This paper holds that the size and structure of base money and different levels of money supply will be changed due to moneysubstitution effect and money conversion effect brought about by the development ofelectronic payments, and the development of credit card payment will produce aphenomenon called "loans create deposits" which will to some extent form amechanism of reversed compelling the central bank to supply base money. Theempirical study shows that the impacts of the development of electronic payments onmoney multipliers of different money supply levels present inconsistent and complexmovements due to different influences caused by multiple variables.Fourthly, this paper discusses the impacts of the development of electronicpayments on the velocity of money circulation. This paper argues that the impact ofthe development of electronic payments on the velocity of money circulation will bedifferent with the change of money supply levels. Both data analysis and empiricalresults show that the velocity of money circulation in China has formed the "U" shapepresented by some classic theory about the velocity of money circulation, but thevelocity of narrow money supply circulation and broad money supply circulation arestill on a downward trend.Fifthly, this paper studies the operating mechanism of monetary policy in thecontext of electronic payments. Based on a case study of Canada’s successfulimplementation of its monetary policy with the electronic payment system, this paperexplores into the practical choice and reform direction of the monetary policyimplementation in China in the context of electronic payments development.The research of this paper on the laws governing the operation of monetarypolicy and specific monetary policy implementation pathways is a helpful explorationand necessary complement to the applicability of traditional money supply anddemand theory as well as the theory of the central bank in the era of electronicpayments, and it will also provide some theoretical guidance and reference for thecentral bank in China to formulate and implement monetary policy in the era ofnetwork economy.