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Electronic money (or digital money) refers to cash and transactions using electronic means, encompassing the use of computer networks (such as the Internet) and digital stored value systems. Electronic Funds Transfer (EFT) is an example of electronic money. It is also a collective term for financial cryptography technologies enabling it.
While this has been an interesting problem for cryptography (see, for example, David Chaum's work), the use of digital cash so far has been relatively low. One rare success has been Hong Kong's Octopus card system, which started as a transit payment system and has grown into a widely used electronic cash system.
Electronic Money and currency
Technically, electronic money can be an independent currency, just like Euro before the legal tender of Euro was introduced in 2002. However, a service provider (except banks or governments) of electronic money lacks the abilities to back the money with commodities and to persuade people to have faith in their currency and make people use electronic money like central banks or governments do (see fiat money). More commonly the electronic money is used as a non-physical form of another currency.
In the case of Octopus Card in Hong Kong, deposits work similar to banks. After Octopus Card Limited receives money for deposit from users, the money is deposited into banks, which is similiar to debit-card issuing banks redepositing money at central banks.
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