To some observers, one important economic consequence of electronic cash is the free issue of private currency by commercial banks or other non-firms. However, if we look at the history of money, it is not easy to make privately issued currency credible in the eyes and wallets of the public. As long as there is competition between banks, private banks will sometimes become bankrupt. Nothing is more debilitating to the credibility of privately issued currency than bankruptcy.

The most important characteristic of digital cash is its transnationality. Digital cash does not recognize national borders. It is not controlled by any central bank of any nation state. The unprecedented efficiency of international payments with digital cash may indeed increase the instability of the global monetary system. This efficiency indeed may lead to conflicts between digital cash providers

The widespread use of digital cash will turn cyberspace into a large-scale economy. The attendant benefits of digital cash, in this scenario, will be sufficiently plentiful to overcome security concerns. With an increased use of digital cash, what will happen? In this scenario, I will consider three stages of development.

This development means that money in cyberspace fluctuates with virtual economic activity which in turn eventually has an impact on the real world's money supply. Suppose the virtual economy expands leading to a temporary shortage of digital cash. The demand for digital cash will mean the transfer of real cash to electronic banks. Cyberspace will absorb real cash and in turn shrink the money supply in the real world.

What are the possible effects of digital cash on large-scale, economic stability? Is digital cash a proxy for real currency or is it just privately-issued new currency?

Digital cash spreads on the Internet. Increased efficiency brings unprecedented benefits to both producers and consumers. Multinational small businesses gain momentum and new business organizations appear, the so-called virtual corporations. Consumers enjoy the ability to purchase goods and services anywhere in the world. Some banks, that decide adhere to traditional transaction systems, lose their competitive edge. The size of the cyberspace economy, measured by the total sales on the Internet or the GNP, grows at a more rapid pace than the economy of the real world.

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Approximate Word count = 5312
Approximate Pages = 21 (250 words per page double spaced)