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JEL Classifications: G29; 039; P29
Keywords: electronic money, payment systems, transitional economies
This paper analyses opportunities and threats for Countries in Transition (CIT), and for other developing countries, brought about by the electronic money (e-money) and other electronic retail payments systems developments. The strengths and weaknesses of CIT financial systems, in respect of the new payment technologies, are also assessed. The study looks at retail payment systems and importance of cash in CIT and identifies general business and public policy implications of e-money. It is argued that the new payment instruments, and e-money in particular, can contribute to cash substitution and development of more efficient payment and banking systems practice in CIT and indeed other developing countries, and inspire competition among financial intermediaries.
I. Introduction
During the 1990s, Countries in Transition - CIT (former communist countries) have been reforming their payment systems in support of the transition of their financial and banking systems. As the "monobanking" systems with dominant central banks in CIT were being replaced with two-tier banking systems, and with the larger number of financial intermediaries present, the changes in the payment systems had to reflect the less-controlled, multiparty, payment flows. Reform of the large-value, interbank, transfer system had priority in payment system design and operations, to facilitate monetary policy and control and enable liquidity management by financial intermediaries. However, apart from the improvements in large-value payment systems in transitional countries, a great amount of consideration should be given to the efficiency of small-value 'retail' payments, as the efficient retail payments increase customer's choice and satisfaction, price transparency and contribute to smooth trading activity. Furthermore, fast and efficient retail payment systems may encourage greater use of (legal) banking channels than it is the case at the moment in CIT.
The advent of new electronic payment instruments and infrastructure, and electronic money (which is defined in the appendix) in particular, may present the policy makers in CIT with an opportunity to improve their payment systems quickly, but it may also burden them with potential threats. However, these developments cannot be ignored, as they will affect the CIT payment and financial systems in one way or another, through (opted for) financial liberalisation, globalisation and/or regional integration processes. This paper, therefore, analyses retail payment...