A smart card, also known as an electronic purse, is a plastic card that can be loaded with a monetary value. Its developers argue that, once widely accepted, it could replace the use of currency in...

A smart card, also known as an electronic purse, is a plastic card that can be loaded with a monetary value. Its developers argue that, once widely accepted, it could replace the use of currency in vending machines, parking meters, and elsewhere. Suppose smart cards came into widespread use. Present your views on the following issues:

a. Would you count balances in the purses as part of the money supply? If so, would they be part of M1? M2?

b. Should any institution be permitted to issue them, or should they be restricted to banks?

c. Should the issuers be subject to reserve requirements?

d. Suppose they were issued by banks. How do you think the use of such purses would affect the money supply? Explain your answer carefully.