In this case, perhaps the large money center and regional banks would collectively take on the role of providing settlement balances to the providers of e-money. Let’s call them the settlement banks. Let us also assume that such settlement balances were convertible into balances held at the central bank, a link that would enhance the acceptability of and confidence in e-money.
This hypothetical situation--perhaps one more interesting as an intellectual challenge than as a plausible outcome--forces us to try to understand what the minimum requirements are for an effective monetary policy, defined as one that can maintain control of some short-term interest rate.