Chapter 17 Answer guidance to end of chapter questions

1. Is it too late to develop an effective online e-money sector in Europe? Did the first Electronic Money Directive kill off any chance of such a business sector developing, due to its draconian rules on liquidity?

This is an interesting question and it is difficult to answer without a crystal ball.

1. An interesting starting point is to note that the report Evaluation of the E-Money Directive (2000/46/EC) Final Report found that in general the uptake of electronic money in the EU had been disappointing, noting that ‘e-money market has developed more slowly than expected, and is far from reaching its full potential’, and that ‘the take-up of card-based e-money has remained low in most EU Member States. Card-based e-purses in many countries have been discontinued, and for most of those that remain, usage remains very limited . . . [as] e-money cards are still used almost exclusively at unmanned stations (public telephones, car parks, vending machines).’
2. The same report noted ‘the recent emergence of contactless cards may provide a new impulse to card-based e-money. Such cards are currently issued almost exclusively by public transport providers, and can at present only be used to pay for transport services. However, this may change relatively soon, and there seem to also be significant potential benefits in the use of contactless e-money cards for other types of entities such as financial service providers, retailers, telecoms, utilities, sports stadiums and local councils.’ Thus the focus is on offline Emoney – the Commission seems to acknowledge that online Emoney is unlikely to flourish.
3. The 2009 Directive has allowed for companies to risk innovations as a separate business to their main business but all the focus is on offline transactions and money transfers – Pingit, Google Wallet etc. The only alternatives to cards online seems to be PayPal which has taken a dominant position in online payments.

2. Is it now time to bring cryptocurrency systems formally within the framework of the Electronic Money Directive? Advise the European Commission on what you see as being the key provisions of a model Cryptocurrency Directive.

To answer this question I would expect the student to discuss in order:

1. What cryptocurrency is. This would involve a discussion of PKE encryption and blockchain to explain how a peer-to-peer currency, which has no central issuer, can be secure and can guard against double spending.
2. The current legal position of cryptocurrency under the existing laws including the Electronic Money Directive 2009, the Currency and Bank Notes Act 1954, the Coinage Act 1971 and the Banking Act 2009.
3. The student should discuss whether the current requirement that electronic money have an issuer under Art.2(2) of the Electronic Money Directive is outdated given blockchain technology.
4. A discussion of the structure of a possible Cryptocurrency Directive.