mr gramlich assesses the state of the electronic money transformation in the united states and abroad remarks by mr edward m gramlich, member of the board of governors of the us federal reserve system, before the electronic payment symposium, university of michigan, ann arbor on 17 september 1999. * * * although the united states economy seems to be leading the world in the adoption of new computer and internet - based technology, the picture is not uniform. the united states is not at the forefront in the adoption of electronic money systems, one area that would seem most eligible for the information revolution. adherence to traditional payment systems, check and cash, is very strong. the united states is the only developed country in the world where check use is still increasing, with the number of checks written growing at a rate nearly as fast as the overall economy. use of cash is extensive as well. americans still use cash for about three - quarters of all transactions. the total us supply of coin and currency now comes to $ 550 billion, about one - third of which is actually circulating in this country ( the remainder is held abroad ). but even after subtracting estimated foreign balances, the supply of outstanding coin and currency comes to $ 670 per capita which strikes most people as incredibly large. for many years, observers have looked forward to the advent of electronic money, a system that uses either a computer chip or another electronic device to record payments and debits automatically. there are obvious efficiency advantages in terms of ease of handling and record - keeping for consumers, merchants, the banking system and the federal reserve. use of electronic money systems appears to be growing in at least a few foreign countries. but in this country, growth of electronic money systems is sluggish – well behind earlier predictions, well behind the growth of credit and debit card use and way behind the growth of other types of electronic commerce. even fervent advocates of electronic money will admit disappointment at its rate of adoption. in this talk i will try to assess the state of the electronic money transformation, here and abroad. i mention some promises, some stumbling blocks and some technological and regulatory issues that will have to be dealt with as electronic money use proceeds. historical antecedents the idea of using technology to improve the efficiency of the payment system is very old. world commerce has seen an evolution from barter to valuable metals, to paper money and to checks. in the united states, as early as 1853, more than a half - century before

recoveries. consumer spending is also being restrained by the excess supply of housing, which has put downward pressure on home equity values and household wealth. a substantial portion of homeowners now have negative home equity and are effectively unable to refinance at historically low mortgage rates. many more have seen a drastic decline in the value of their homes, which would typically serve as collateral for home equity lines of credit or second mortgages. the slow progress in repairing and restructuring households ’ balance sheets may also be lowering the normal responsiveness of consumer spending to a decline in market interest rates. in particular, lenders continue to maintain relatively tight terms and standards on credit cards and, to a lesser extent, other consumer loans. consequently, many households may be unable to take advantage of the lower borrowing rates that are available to those who have a high net worth and pristine credit records. many small businesses also appear to be facing unusual obstacles in obtaining credit. if times were more typical, we would expect a smooth transmission in which lower interest rates would fuel credit expansion that would be used to finance expanding payrolls, capital investment, inventories, and other short - term operating expenses. nonetheless, the latest federal reserve senior loan officer opinion survey on bank lending practices, which was taken in july, indicated that although domestic banks continued to ease standards on their commercial and industrial loans, the net fraction reporting easing on such loans to smaller firms ( those with annual sales of less than $ 50 billion ) remained low and was well below that bis central bankers ’ speeches of loans to large and middle - sized firms. 7 in its august survey, the national federation of independent businesses reported a noticeable increase in the proportion of small businesses reporting that credit has become more difficult to obtain. 8 these businesses not only expect credit to become tighter in coming months but – like other businesses – have turned sharply more pessimistic about the broader economic outlook. finally, and perhaps most comprehensively, it is worth observing that the financial crisis has undermined the wealth of many americans. low - and moderate - income families entered the recession with little financial buffer against the adverse effects of wage cuts, job loss, and drops in home values. according to the 2007 survey of consumer finances ( scf ), home equity accounted for about half of the total net worth for low - and moderate - income families, which made them extremely vulnerable to the eventual housing market collapse. 9 families at the lower end of the income distribution saw a substantial drop in their net worth