Taskie !How to get task done well!

Digital Cash and Policy AuthoritiesFiled Under: General

Digital cash or the Internet payment has excited economists to speculate whether any of the possible forms of money will make the present methods of operating monetary policy impossible or much difficult. It is easy to predict that digital cash will influence policy authorities. However, digital cash is seen as a bank-issued debt, or in other words, a deposit. It circulates under the assumption, the trust, or the guarantee that 100% of it can be converted to cash (a central bank note). The digital cash itself does not possess the finality of the settlement. I doubt that the policy authorities will be greatly influenced
by it anytime soon. The mechanism of digital cash essentially is no different than a bank note7.
How the policy authorities might be influenced by the appearance of digital cash is laid out in the following:

a) Problem concerning management of the cash supply
I will discuss this problem in some detail. The debate continues about difficulties managing the cash supply because settlements with deposit currency will decrease as settlements by digital cash increase (BIS, 1996). So there are fears that the function of deposit creation will decrease. However, there would be no change in the cash supply if the issued digital cash were to be converted immediately to traditional currency. Or if non-depository digital cash issuers hold their digital cash in their own checking account, the cash supply will not be altered (Congressional Budget Office, 1996; Hancock and Humphrey, 2000). The problem might instead reside in what the monetary amount is and the length of time it is kept as digital cash. For instance, there would be no change in the multiplier if the digital cash is issued
against a bank deposit, but the multiplier increases if digital cash is issued against a treasury bond, for example. Moreover, it’s feasible for the multiplier to become unstable at the diffusion interval of digital cash. However, in the case where digital cash is increasingly substituted for paper cash, authorities would better be able to manage high-powered cash. And regarding the national debt as well, it would
not be particularly difficult for monetary authorities to gain better control of finances. Then what would happen relating to deposit payment preparation? The effect of the multiplier exists as long as demand continues for the cash that the central bank issues or prepares for deposit payment. However, as digital cash prevails, the comparative ratio of deposit payment preparations shrinks. Though the spread of
digital cash naturally decreases the preparation requirements for payment, the multiplier rises and so does the possibility of the trend having an effect on monetary policy.

Taken From: 10 Minute Guide to Conducting a Job Interview