To address the issues in debate, let’s assume that network e-money is not subject to reserve requirements. In this case, reserves would decline, so we would need to analyze the implications of such a decline for the conduct of monetary policy. Fortunately, we already have some experience with earlier innovations that have reduced the demand for reserves.
Over the past decade, for example, banks have implemented retail sweep programs. These programs sweep excess funds not immediately needed for transactions from reservable transactions accounts into nonreservable saving accounts, allowing banks to reduce their required reserves. Banks have an incentive to use sweeps to reduce required reserve balances because they pay no interest.