value which you would doubtless wish to protect. customers will want to be assured that the money or credit points are in safe hands. regulators, too, may desire to verify that no banking activity is taking place that is unlawful, although they will first need to ascertain the location of this virtual operation ( a task which is itself almost a contradiction in terms ) so as to identify what is the applicable jurisdiction. although in most of these schemes the maximum sum which anyone may hold in a purse may, for the moment, be quite modest, and so the scale of potential losses limited, we need to establish the foundations of prudent behaviour and regulation in preparation for the time when the sums may be much larger. thus far i have been looking at the phenomenon of e - banking and e - payments largely from the regulatory point of view. i would like to turn now to examine whether there are any noteworthy implications for the key central bank responsibility of monetary policy. i want first to consider possible implications for the physical currency. central banks or their government shareholders enjoy a steady stream of profit from the issue of currency in the form of notes and coin - the so - called seignorage. it is noteworthy that the public ’ s demand for currency has been much less affected over the years than one might have expected by the emergence of successive new forms of non - cash payment such as cheques and cards. and personally i would doubt whether the development of cyberpurses, cybercash and cyberpayments would have much impact on cash in circulation, at any rate in the near term. but suppose i am wrong. suppose there is a complete revolution such that cybercash, including electronic stored - value cards, substantially displaces physical currency within a few years. how should central banks react? in such circumstances, central banks would lose an important source of income and would have to find ways of replacing it. perhaps some central banks would lose their financial independence and become dependent - or more so than hitherto - on subvention from the government budget. but in a broader sense they should welcome the development because it would be evidence that the economy as a whole was enjoying a more efficient and less expensive means of money holding and transmission. with regard to operational aspects of monetary policy in pursuit of the general macroeconomic objective of stability in the value of the currency, the advent of this new means of payment would, if it caught on to a significant extent, have some impact on

in matters of electronic technology. inevitably we are dependent on the experts. they have devised sophisticated methods of electronic signatures, encryption, certification, firewalls and the like. one way or another, by obtaining appropriate professional advice, by applying rigorous standards of compliance and computer audit, and so on, those within an organisation should be able to deliver the necessary assurances to customers, and the regulatory or supervisory authorities will need to satisfy themselves as to the dependability of such assurances. the financial authorities within countries, and on a collective basis internationally, may also have a role to play in developing recognised common standards in these arenas of technology and security. the second characteristic deserving our special attention is the nature of the person or company which is offering us banking or payment services over the internet. if we are merely using electronic services provided by our usual bank, which we know to be sound and to be supervised by an acknowledged regulator in a known jurisdiction, then we should be in no more danger of losing our money than we would be by banking with the same bank in the conventional manner, provided of course that both the bank and the regulator have kept pace with the requirements of internet banking, such as in respect of the security aspects discussed already. but it is quite a different story if we are tempted to part with money to some organisation masquerading as a bank, or which actually is a bank but is registered in a jurisdiction with lower supervisory standards than those to which we are accustomed. in hong kong, in order to protect the public we already have legislation governing usage of the word “ bank ”, and governing the advertising for deposits within our boundaries by anyone not authorised to take deposits in hong kong. but we cannot protect people from the possible consequences of clicking onto a website in a far - off place which is luring them to part with their money. the message is clear : make sure that you know and trust your banker. in hong kong there has been some talk of new banks being established for the sole purpose of conducting internet banking. in deciding whether to authorise such a bank, the monetary authority would expect to apply very much the same criteria as for a conventional bank, but would need to pay particular attention to the business plan in order to ensure that it reflected realistic assumptions and prudent banking principles. we intend in the near future to issue guidelines for any such applications. already, as the supervisory body for existing banks, the monetary authority needs to take account of any particular risks that per