Electronic money and the future of central banks

Computers and telecommunications devices may replace paper currency and checks—some day. Indeed, electronic methods of transferring money have become widely used. Recently, however, discussion of “electronic money” has taken a new turn, zeroing in on the extent to which holding new forms of electronic money eventually could make central banks obsolete, rendering them powerless to control inflation. This Commentary updates the old story of electronic funds transfers before introducing the new story of electronic money holdings, which may be a metaphor for a larger question about the future of central banking.