Electronic Cash

Credit-card issuers in the United States have begun to explore the idea of introducing electronic-cash products. Seven financial giants, including Wells Fargo, Chase Manhattan, and MasterCard, have agreed to market the Mondex electronic cash product in the United States.1 VISA is developing a separate product. These products consist of a plastic payment card and other accessories, and consumers can use them to pay for goods and services the same way they use cash. Also like cash, consumers can use them for making person-to-person payments. These cards are equipped with microchips through which funds can be electronically credited and debited. Users transfer money from their bank accounts to their cards by inserting the card into an automatic teller machine (ATM) or a specially adapted home (or public) telephone. Mondex maintains that its card offers consumers a number of benefits over traditional cash: It has an electronic locking system, which makes it more secure than cash, and it is also more convenient and accessible [it eliminates the need to carry coins and small notes, especially for routine daily transactions where exact change is needed]. Because of the similarity to cash, payment transactions do not involve authorizations or signatures. . . [Thus electronic cash is faster and easier than writing a check or getting a credit card authorization.] [W]ith Mondex it is [also] possible to carry out immediate [cash withdrawals] using specially designed pay phones, or private telephones providing customers with the convenience of a cash dispenser in their homes. (Mondex press release) But Federal Reserve economist Harvey Rosenblum argues that “the current paper-based system doesn’t have much to recommend it, other than it works great, is cheap, reliable, and we trust it” (quoted in Kutler (1997), 4). Mondex co-inventor Tim Jones disagrees: Physical money has problems. It can be lost, it can be stolen, and there are no records of cash transactions. You have to go to ATMs to get it . . . and you can’t send cash to someone down a telephone line. Mondex overcomes these problems. . . . [U]nlike physical money, Mondex can be sent down a telephone line. And unlike money in a bank account there is no need to authorize a bank to make Mondex payments or to check that funds are available; there are no signatures to be validated or PIN numbers to confirm identities. Consequently there is no delay. As with a straight cash transfer, the recipient gets purchasing power instantaneously. (Quoted in Palmer (1994), 7.)