Abstract

Electronic money, or stored value products, is a new frontier for retail payments systems whose technology is rapidly evolving, with new products and developments being announced almost weekly. In comparison, the legal rules governing such products are undeveloped and uncertain. Legal uncertainty is of some concern because monetary history, at least in the United States, suggests that it may undermine public confidence in a payments system, particularly if there are any questions about a system’s ability to deliver good value. In turn, legal uncertainty may stifle development of a desirable payments system—even one that is as economically efficient as electronic money promises to be—if it is too difficult for users of the system to ascertain and appropriately control risks. At the same time, adopting rigid legal rules is not the answer because this too can hamper product development. What is needed then is a happy balance—sufficiently clear legal rules to assess liability and risk, without their being so costly and constraining that they become an iron cage.