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Gold/Mining/Energy : Gold Price Monitor

GDXJ 97.80

+0.9%

Nov 19 4:00 PM EST

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To: Winzer who wrote (42546)	10/9/1999 8:21:00 PM
From: long-gone	Read Replies (3) of 116763

Proof "They" just don't get it & never will: Resisting Electronic Payment Systems: Burning Down the House? by Ben Craig Electronic innovations such as smart cards can significantly reduce the cost of payment transactions and increase their accuracy and efficiency ?but only if people use them. This Economic Commentary explores path dependence as a cause of the difficulty in adopting new payment system technologies, even when their advantages are apparent. In the Cleveland Museum of Art hangs a famous painting, The Burning of the Houses of Parliament, by J.M.W. Turner. The painting depicts an event that provides a fascinating case study of the difficulty of changing payments systems in the face of new technology. This difficulty is surfacing again as modern economies face the switch from paper-based payments systems to a variety of electronic systems. The Rivlin Committee called attention to the phenomenon in its 1998 report when it observed that ?...the reliance on paper-based retail payment methods is striking in an electronic age.?1 The report estimates that the percentage of paper makes up 78 percent of all noncash transactions in the United States and only 37 percent in Europe. Why has the United States been so slow to change? Much insight into the reason can be gained by examining the events surrounding the original adoption of paper as a means of public record keeping?events which led to the disastrous fire depicted in Turner?s masterpiece. This Economic Commentary explores path dependence as a reason for the choice in payment systems, as well as for other economic phenomena. Path dependence means that historical decisions made in the remote past will often determine the decisions made today. It is related to the physical concept of hysteresis. Hysteresis refers to the failure of a system to return to its original value once the source of a change has been removed. Thus, when you put pressure on a bar beyond a certain point, it will bend, and hysteresis will keep the bar bent when you remove the pressure. The bar?s shape reflects the historical pressures that made it bend and will therefore show its path dependence. This Economic Commentary will show how path dependence and hysteresis work to determine economic events, particularly when network economies are in effect, and will suggest that policy intervention may be justified where hysteresis is clearly at work. The Burning of the Houses of Parliament represents an event that illustrates the ability of network economies to create a path dependence in payment conventions.(cont) clev.frb.org

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