What Is Electronic Money?
Electronic money is the currency that exists in banking computer systems that may be used to facilitate electronic transactions. Although its value is backed by fiat currency and may be exchanged into a physical, tangible form, electronic money is primarily used for electronic transactions.
Key Takeaways
- Electronic money is currency stored in banking computer systems.
- Electronic money is backed by fiat currency and the central banking system.
- Various companies allow for transactions with electronic money, such as Square or PayPal.
How eMoney Works
Electronic money is used for transactions globally and is commonly accessed through electronic banking systems and monitored through electronic processing. eMoney can be exchanged between individuals and businesses electronically using digital apps.
Electronic money is backed and controlled by central banks. The U.S. Federal Reserve and 12 supporting banks manage the fiat currency in physical form and control the money supply through monetary policies and open market operations.
Central banks are exploring the use of a Central Bank Digital Currency. In the United States, there is a physical currency issued by the Federal Reserve and digital balances held by commercial banks at the Federal Reserve. A CBDC would be a liability of the Federal Reserve, not of a commercial bank.
Electronic Payment Processing
Americans process transactions electronically by receiving paychecks through direct deposits, moving money from one account to another via electronic fund transfers, or spending money with credit cards and debit cards.
The U.S. financial market has a robust infrastructure for transacting electronic money, which includes payment processing networks, such as Visa and Mastercard. Prepaid cards and digital wallets like PayPal and Square likewise allow users to deposit fiat currency for electronic money. Electronic money allows for immediate transactions through e-commerce.
Here's our review for Best Money Transfer Apps
eMoney vs. Cryptocurrency
Electronic money may be exchanged for fiat currency and is represented within the regulated banking system. Cryptocurrencies are privately issued and are not backed by financial assets. Cryptocurrency is created using blockchain technology without government control or regulation.
What Is a Disadvantage of Using Electronic Money?
Fraud may be an issue when money can be transferred from one party to another without the necessity for verification of the original owner’s true identity.
Is Cash Losing Popularity as the Use of eMoney Rises?
In 2022, only 18% of all payments were made with cash in the United States.
What Is an Electronic Wallet or Digital Wallet?
A digital wallet or electronic wallet is a financial transaction application that runs on any connected device. It securely stores paymentinformation and passwords in the cloud. Digital wallets may be accessible from a computer;mobile wallets, which are a subset, are primarily used on mobile devices.
The Bottom Line
Electronic money or eMoney is currency stored in banking computer systems and backed by fiat currency. Individuals process and receive electronic money through paycheck direct deposits, electronic fund transfers, or online payments and purchases.
