Stored Value: An Analysis of its Institutional and Economic Implications

Increasingly public attention and the media is focusing on the advent of Smartcards and the move towards the concept of a cashless society. Email cash and other means of transactions through the Internet are also gaining media attention; often reflecting a lack of understanding of the institutional arrangements governing the nature of the monetary system and its foundations. This paper using the concept of stored value as a generic term for money accessible and exchangeable through electronic media, inclusive of but not exclusive to Smartcard technology, attempts to remedy this by providing a clear conceptual understanding of what is involved. In doing so the paper focuses on a number of important issues. In particular, the implications for seigniorage, wealth transfer, and the potential for a less than socially optimal allocation of resources if the incentive to provide a new and innovative retail payment system is not carefully monitored and understood.