# Understanding Electronic Money (eMoney): Transactions, Uses, and Benefits

## What Is Electronic Money?

Electronic money is the currency that exists in banking computer systems that may be used to facilitate [electronic transactions](https://www.investopedia.com/terms/s/secure-electronic-transaction-set.asp). Although its value is backed by fiat currency and may be exchanged into a physical, tangible form, electronic money is primarily used for electronic transactions.

### Key Takeaways

*   Electronic money (eMoney) facilitates digital transactions by storing currency in banking computer systems, offering a modern alternative to physical currency.  
    
*   eMoney is backed by fiat currency and is regulated by central banks, distinguishing it from cryptocurrencies which operate independently of government control.  
    
*   Financial transactions using eMoney are conducted easily through tools like digital wallets, credit cards, and electronic fund transfers, driving the decline of cash transactions.  
    
*   While offering convenience, eMoney transactions carry risks, such as fraud, since verification of the original owner can be difficult.  
    
*   Central banks are considering Central Bank Digital Currencies (CBDCs), which would represent a government-backed form of digital currency further strengthening the role of eMoney.  
    

## Understanding How Electronic Money Operates

Electronic money is used for transactions globally and is commonly accessed through electronic banking systems and monitored through electronic processing. eMoney can be exchanged electronically between people and businesses using digital apps.

[Central banks](https://www.investopedia.com/terms/c/centralbank.asp) back and control electronic money. The U.S. Federal Reserve and 12 supporting banks manage physical fiat currency and control the money supply through policies and market operations.

> **Important**
>
> Central banks are exploring the use of a Central Bank Digital Currency. In the United States, there is a physical currency issued by the Federal Reserve and digital balances held by commercial banks at the Federal Reserve. A CBDC would be a liability of the Federal Reserve, not of a commercial bank.

## Exploring Electronic Payment Methods

Americans process transactions electronically by receiving paychecks through [direct deposits](https://www.investopedia.com/terms/d/directdeposit.asp), moving money from one account to another via electronic fund transfers, or spending money with credit cards and debit cards.

The U.S. financial market has a strong infrastructure for electronic money transactions, including networks like Visa and Mastercard. Prepaid cards and digital wallets, like [PayPal](https://www.investopedia.com/terms/p/paypal.asp) and [Square](https://www.investopedia.com/articles/tech/021017/square.asp), allow users to deposit fiat currency as electronic money. Electronic money enables immediate transactions online.

> **Fast Fact**
>
> Here's our review for Best Money Transfer Apps.

## Comparing Electronic Money and Cryptocurrency

Electronic money can be exchanged for fiat currency and is part of the regulated banking system. [Cryptocurrencies](https://www.investopedia.com/terms/c/cryptocurrency.asp) are privately issued and are not backed by financial assets. Cryptocurrency is created using blockchain technology without government control or regulation.  

## What Is a Disadvantage of Using Electronic Money?

Fraud may be an issue when money can be transferred from one party to another without the necessity for verification of the original owner’s true identity. 

## Is Cash Losing Popularity as the Use of eMoney Rises?

In 2022, only 18% of all payments were made with cash in the United States.

## What Is an Electronic Wallet or Digital Wallet?

A [digital wallet](https://www.investopedia.com/terms/d/digital-wallet.asp) or electronic wallet is a financial transaction application that runs on any connected device. It securely stores payment information and passwords in the cloud. Digital wallets may be accessible from a computer; [mobile wallets](https://www.investopedia.com/terms/m/mobile-wallet.asp), which are a subset, are primarily used on mobile devices.

## The Bottom Line

Electronic money or eMoney is currency stored in banking computer systems and backed by fiat currency. Individuals process and receive electronic money through paycheck direct deposits, electronic fund transfers, or online payments and purchases.

> **Article Sources**
>
> 1.  Board of Governors of the Federal Reserve System. "[What Is a Central Bank Digital Currency?](https://www.federalreserve.gov/faqs/what-is-a-central-bank-digital-currency.htm)"
>     
> 2.  Federal Reserve Bank of San Francisco. “[2023 Findings from the Diary of Consumer Payment Choice](https://www.frbsf.org/cash/wp-content/uploads/sites/7/2023-Findings-from-the-Diary-of-Consumer-Payment-Choice.pdf),” Page 6.