E-cash and Interest
I had been doing some thinking about E-cash and some of the implications. It seems to me that there is another element in the discussion that has not gotten very much consideration. When you have your money in the bank, you are earning interest on the money (albeit not very much! <g>) and that money continues to earn interest until it is withdrawn. If you write a check to pay for something, that ends your interest accumulation for that money. With the E-cash systems that I have seen, you generate your own E-cash and have it signed by a 'bank' At that moment, it becomes like cash in your wallet and you loose interest that this money could be earning. Has this issue been addressed, or am I missing something? Regards, Tim Philp =================================== For PGP Public Key, Send E-mail to: pgp-public-keys@swissnet.ai.mit.edu In Subject line type: GET PHILP ===================================
When you have your money in the bank, you are earning interest on the Has this issue been addressed, or am I missing something?
You are missing something. One can earn interest on money, or gold, or oil, or pork bellies, if one - puts it at risk. Typically by lending it out. In our curent FDIC system, there is created the myth, that bank interest is given without concomiitant risk. The laws of economics are like the laws of physics. They apply, no matter what anyone says about anything. There is no free lunch - nor risk-free interest.
On Wed, 10 Jan 1996, Tim Philp wrote:
With the E-cash systems that I have seen, you generate your own E-cash and have it signed by a 'bank' At that moment, it becomes like cash in your wallet and you loose interest that this money could be earning.
From the standpoint of monetary economics, this is correct. The (ecash) bank has the right to use your deposits to give out loans. When you withdraw your money (and turn it into either cash or ecash) they (the bank) no longer have the right to turn your deposits into loans. Withdrawn cash/ecash can not earn interest.
This is the problem of (e)cash: if you have it on hand you _must_ forgo any interest earnings. Theoretically, the optimum holding of (e)cash is a function of interest rate (the greater the interest rate, the less cash on hand), transaction cost of making withdrawals (the easier and more convenient the withdrawals, the less cash on hand), and the "providence value" of cash (the more you value instant gratification, the more cash on hand). Thats why ATM machines have caused us to hold less cash. We can now keep money in the bank (letting it earn interest and letting the bank create loans with it) and withdraw from ATM terminals only when we need it. ------------------------------------------------------------------------------- Patiwat Panurach Whatever you can do, or dream you can, begin it. eMAIL: pati@ipied.tu.ac.th Boldness has genius, power and magic in it. m/18 junior Fac of Economics -Johann W.Von Goethe -------------------------------------------------------------------------------
participants (3)
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Alan Horowitz -
luxana -
Tim Philp