Electronic Money and Relevant Legal and Regulatory Issues

Introduction Money has existed in civilisation for thousands years, originating from both economic and non-economic causes such as tribute, trade, blood money, barter and religious rites.1 Primitive money took many forms, from cowrie shells to cattle and whales teeth, and later coinage. The development of money can be divided into four main groups:2 the first is ?objects-as-money?group which consisting of the first generation (trade by barter) and the second generation (trade with valuable objects); the second is ?currency-as-money?group which consisting of the third generation (coins) and fourth generation (paper notes); the third is ?claims-as-money?group which comprising the fifth (deposit accounts), sixth (?plastic money? and seventh generations (electronic payments (EPs) and electronic fund transfers (EFTs)); and the fourth is ?electronic-impulses-as-money?group which covering the eighth generation (smart cards) and ninth generation (digital coins). The continued development of money was very much linked to the growth in world trade and commerce. With the onset of the industrial revolution, foreign and domestic trade increased greatly and monetary exchange and payment systems rapidly developed. The advent of electronic payment can be traced back to 1918, when the Federal Reserve banks of the USA first moved currency via telegraph.3 Electronic payment systems exist in a variety of forms which can be divided into two groups: wholesale payment systems and retail payment systems. Wholesale payment systems exist for non-consumer transactions, high-value wholesale payments flow through the three major interbank funds transfer systems: CHIPS,4 SWIFT5 and Fedwire.6 Retail electronic payment systems encompass those transactions involving consumers. These transactions involve the use of such payment mechanisms as credit cards, automated teller machines (ATMs), debit cards, point-of-sale (POS) terminals, home banking, and telephone bill-paying services. Payments for these mechanisms are conducted online and flow through the check truncation system7 and the ACH.8 A number of innovations are taking place in the area of retail electronic payments known as electronic money (e-money). These innovations, which are still at a relatively early stage of development, have the potential to challenge the predominant role of cash for making small-value payments and could make retail transactions easier and cheaper for consumers and merchants. It has been suggested that e-money is likely to ?lead to a new concept of pocket money, give birth to a new commercial payment system for the Internet, change the way governments pay out benefits electronically, and revolutionize the movement of value over telephone lines and airwaves.?9 The use of e-money in low-value, high-volume transactions opens up a wide variety of new services and changes the way in which old ones can be delivered. However, it seems that e-money products have not yet gained wide acceptance, the reaction to these products around the world has been lukewarm so far. It appears that e-money is ahead of customer demand, for the present time at least. This is due to some concerns about e-money, such as security, privacy and some other issues. The development of innovative e-money raises numerous legal and regulatory issues that must be addressed. These include finding acceptable methods for authentication and protection of information, accommodating the special needs of law enforcement, and creating the requisite means of settling disputes. This article identifies some key issues raised surrounding e-money and proposes strategies for regulatory control. Part two introduces e-money and its features as well as its impacts on banks. Part three and part four discuss respectively the legal issues on issuing, using and regulating e-money. Part five concludes with some suggestions. Electronic Money 1. What is money? Money is a medium that people are willing to accep