What is 'Electronic Money'

Electronic money is money which exists in banking computer systems and is available for transactions through electronic systems. Its value is backed by fiat currency and it can be exchanged into physical form however its uses are often more convenient electronically.

BREAKING DOWN 'Electronic Money'

Electronic money is used for purchases and transactions globally. While it can be exchanged for fiat currency, it is much more conveniently monitored and utilized through electronic banking systems and electronic processing.

The value of electronic money is established by its fiat currency which makes it different from emerging cryptocurrencies. Electronic money is backed by the central bank system. However, In the United States, only a small fraction of the currency is utilized in physical form. The remaining percentage of it is held in bank vaults and also against collateral.

Currency in Circulation

Electronic money can be held in various accounts. Most individuals and businesses store their money with banks which provide electronic records of the cash on deposit. Other forms of stored value electronic money include digital wallets such as PayPal and Square or prepaid cards which allow users to deposit fiat currency for electronic money.

With all types of stored electronic money sources the need for fiat currency varies and as such the banking system provides for this through varying means. While banks transact fiat currency to electronic money for their customers they also hold that money in vaults at their physical locations. Since the use of electronic money is more common than physical currency, banks also deposit their cash with one of the 12 Federal Reserve banks across the nation. A primary function of the U.S. Federal Reserve and its 12 supporting banks is to manage the fiat currency in physical form. Thus, the Fed also has control over the money supply through its monetary policies and open market operations. The Fed also controls the reissuance of money and the printing of new money when fiat currency is no longer available for distribution.

Electronic Payment Processing

In the U.S. many people receive their paychecks through direct deposit, move money with electronic fund transfers, and spend money with credit and debit cards. While physical currency still has advantages in certain situations, its role has gradually diminished. Many consumers and businesses feel that electronic money is more secure because it is not easily lost or damaged and can be available for use at nearly all merchants across the U.S. Therefore, the U.S. financial market has a secure and well established infrastructure for transacting electronic money. The primary means for electronic money transactions is through payment processing networks. In the U.S. Visa and Mastercard are the two primary payment processing networks facilitating the transactions of electronic money across the nation.

Banks and financial institutions partner with electronic money networking processors to issue their customers branded network cards which facilitate the transactions of electronic money from bank accounts to merchants. Digital wallets are also available following similar transaction protocals. Electronic money is also easily transacted through e-commerce allowing consumers to shop and purchase all types of goods and services online.

  1. Electronic Check

    An electronic check is a form of payment made via the internet ...
  2. Electronic Funds Transfer Act

    A federal law that protects consumers engaged in the transfer ...
  3. Electronic Blue Sheet - EBS

    An electronic request for detailed information about trades sent ...
  4. Digital Money

    Any means of payment that exists purely in electronic form. Digital ...
  5. Electronic Bill Payment & Presentment ...

    Electronic Bill Payment & Presentment (EBPP) is a process, which ...
  6. Dematerialization - DEMAT

    The move from physical certificates to electronic book keeping. ...
Related Articles
  1. Investing

    EA: How Electronic Arts' Stock Price Rose 10% in 6 Months

    After a dip at the start of the year, Electronic Arts' stock price has climbed to a new record high in the first six months of 2016.
  2. Insights

    What is Money?

    Money: It's a part of everyone's life, and we all want it, but do you know how it gains value and how it was created?
  3. Investing

    BlackRock, AllianceBernstein Want All Bond Trading to Be Electronic by Year End

    BlackRock and AllianceBernstein want all corporate debt trading to be electronic by the end of 2018.
  4. Trading

    The Death Of The Trading Floor

    Electronic trading has almost completely replaced face-to-face human trading.
  5. Tech

    A Brief History of Cryptocurrency

    A brief history of cryptocurrency and some insight into how it works, why it has value, and whether it's a bubble or here to stay.
  6. Insights

    Top 7 Companies Owned by Fiat Chrysler (FCAU)

    Despite a strong portfolio of operating units and historic automotive brand names, Fiat Chrysler Automobiles is still struggling to remain competitive.
  7. Tech

    Why Governments Are Afraid Of Bitcoin

    Bitcoin is the first decentralized peer-to-peer payment network and cryptocurrency. Governments may fear Bitcoin because its value is determined by users and not central governments or banks. ...
  8. Investing

    Electronic Arts Beats on Q3 EPS; Guidance Misses

    The stock price of Electronic Arts (NASDAQ: EA) was down slightly in after-hours trading Tuesday after the video games purveyor released its third-quarter fiscal 2017 results. Revenue came in ...
  9. Personal Finance

    5 Mistakes You're Making With Money Market Accounts

    Money market accounts can be helpful "parking spots" for investors. Here are five key things to keep in mind when opening an account.
  1. What is the electronics sector?

    Learn more about the electronics sector and the challenges and opportunities presented to electronics companies by new and ... Read Answer >>
  2. What is the difference between fiat money and representative money?

    Learn the main differences between fiat money and representative money. Differences include actual physical currency and ... Read Answer >>
  3. Why would growth investors be attracted to the electronics sector?

    Learn why growth investors gravitate to the two segments of the electronics sector, both of which exhibit greater volatility ... Read Answer >>
  4. How much of the global economy is comprised of the electronics sector?

    Find out how much of the global economy is comprised of the electronics sector. Learn which regions are responsible for the ... Read Answer >>
  5. What is the growth rate of the electronics sector?

    Read some projections about the growth rate of the electronics sector. Find out which products are primed to be responsible ... Read Answer >>
  6. Why would an investor consider purchasing electronic stocks for their portfolio?

    Discover why an investor would consider buying electronics securities as part of an investment portfolio and which stocks ... Read Answer >>
Trading Center