--- begin forwarded text Date: Tue, 19 Dec 1995 12:42:23 +0700 (GMT+0700) From: Patiwat Panurach <pati@ipied.tu.ac.th> To: ecash@digicash.com Subject: Economics of Digital Money. MIME-Version: 1.0 Sender: owner-ecash@digicash.com Precedence: bulk Reply-To: ecash@digicash.com The Economics of Digital Commerce: An analysis of Digital Cash, ElectronicFund Transfers, and eCash By: Patiwat Panurach Faculty of Economics Thammasat University Bangkok, Thailand The extraordinary growth of international interconnected computer networks and the pervasive trend of commerce to utilize these networks as a new field for there operations has catalyzed the demand for new methods of payments. These new methods must attain unprecedented levels of security, speed, privacy, decentralization, and internationalization for ìdigital commerceî to be accepted by both consumers and entrepreneurs. This paper seeks to analyze 3 such methods of electronic payments. First shall be the generic type of electronic fund transfer that is widely in use. Second, the ongoing proposals for an open ìdigital cashî standard. Lastly is a real world technology currently in implementation called eCash. These 3 methods are examined in terms of the dynamics of transaction clearance, the effects on money supply and the macroeconomy, there classification in terms of ìmoneyî or ìcashî, and the comparative viewpoints of monetary authorities, financial institutions, and consumers. This paper will not attempt to go into detail on the myriad of encryption systems, protocols, algorithms and other technical matters concerning the new systems. These are all secondary aspects of electronic payment. As there basis, electronic payment systems are simply logical evolutionary steps that began with the realization of the limits of barter. The need to pay for transactions is the root of all electronic payment systems. The first method of electronic payments that shall be examined has been in use for a relatively long time. It is the ìelectronic checking systemî. For many, ìElectronic Checkingî and ìElectronic Paymentî are the same thing, although this is not always so. Electronic Checking simply uses the existing banking structure to its fullest potential by eliminating paper checks. Electronic Checking is an extremely varied system. Some examples of it include … paying for university fees via ATM card … paying telephone bills via monthly bank account deductions … large value overseas fund transfers Conceptually, Electronic Checking, and almost all Electronic Payments, involves 3 agents1: 1. buyer 2. seller 3. intermediary The buyer initiates a transaction with the seller and the seller demands payment. The buyer then obtains a unique certification of payment (physically called a check) from the intermediary. This debits the buyer's account with the intermediary The buyer then gives the certification to the seller and the seller gives the certification to the intermediary. This credits the seller's account with the intermediary. Schematically, this is a ìconventionalî checking transaction. But when it is conducted electronically, the certification is an electronic flow that is documented by the intermediary. Most important, the attainment of the certification, the transfer of the certification, and the debiting and crediting of the accounts occurs instantaneously. If the buyer and seller don't use the same intermediary, some standardized clearing house system between intermediaries is usually used. Since electronic checking is essentially checking, it can be analyzed as checking. Payments made via electronic checking would be conducted outside of cash and paper. Instead of sending a check or paying at a counter, the buyer would initiate an electronic checking certification. If this is done as a substitute for paying in cash, electronic checking could susbstantually reduce the transactions demand for money. In essence, this is not electronic checking but electronic cash. But if it is a substitute for conventional checking, it would just increase the speed of the transaction. From the economic standpoint, there is no difference in the dynamics of the checking process from normal checks --- end forwarded text ----------------- Robert Hettinga (rah@shipwright.com) e$, 44 Farquhar Street, Boston, MA 02131 USA (617) 958-3971 "Reality is not optional." --Thomas Sowell The NEW(!) e$ Home Page: http://thumper.vmeng.com/pub/rah/

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