--- begin forwarded text Sender: e$@thumper.vmeng.com Reply-To: Ian Grigg <iang@systemics.com> Precedence: Bulk Date: Sun, 6 Oct 1996 23:45:29 +0200 From: Ian Grigg <iang@systemics.com> To: Multiple recipients of <e$@thumper.vmeng.com> Subject: Geo-politics and Ant Warfare [rant] Geo-politics and Ant Warfare It is interesting to see the debate that is going on within the central banking community. Compare these two statements. Hans Tietmeyer urges central bank control: FRANKFURT, Oct 3 (Reuter) - Bundesbank President Hans Tietmeyer said on Thursday a new government policy to give only banks the right to issue pre-paid cards, or ``electronic purses'', should also be applied to Internet network money. whilst Alan Greenspan urges free market development: In conclusion, electronic money is likely to spread only gradually and play a much smaller role in our economy than private currency did historically. Nonetheless, the earlier [free banking] period affords certain insights on the way markets behaved when government rules were much less pervasive. These insights, I submit, should be considered very carefully as we endeavor to understand and engage the new private currency markets of the twenty-first century. The BIS and similar organisations enjoy a secretive reputation second only to the spooks. However, this time, the debate would appear to be being carried out in public as well. I would guess that this results because the digital cash scene is not part of the banking world. Rather, it is an invention of cryptographers, programmers and other technologists, and any debate on the subject must involve them, or drift into fantasy. Many of us have thought long and hard about how the future will look if digital cash takes off under a free banking scenario. The ability of digital cash to be issued from anywhere, by anyone. A world where reputation is everything, and the state has a poor PR team. We've all had fun redesigning the world. But we have all assumed that our designs will be universally accepted. What will happen if one side of the Atlantic adopts a free market approach, whilst the other side decides to regulate? A standoff between Greenspan's Wildcats and the Tietmeyer Blitzkriegers? If such were to develop, it is probable that the battle would develop along existing Internet lines. European banks would breath a collective sigh of relief and get on with the business of converting their existing customer base over to electronic banking, using the Internet as a new form of telephone. They would be safe behind the walls of Fortress Europe, for a while at least, ignoring the small but annoying inroads of the Internet- based competition. In the meantime, the battle for digital money supremacy would be being fought over in the free market North America. And what would emerge is likely to be a powerful, integrated financial system that lives in the Internet and is cohesive with it. In the short term, a great shift in composition would occur as many non-banks enter the banking business. In the medium term, after the victor(s) emerge, the fight for growth would push the battle over to uncommitted peoples such as Asia and the other Americas. And in the long term, it's time to take on that last bastion of regulated banking. Earlier today, I was guessing that Mr Tietmeyer was buying his banks about 3 years of peace (and nice profits), and there wouldn't be too much of an opposition to that notion. But after ploughing my way through today's e$pam of announcements, I now downgrade the "long term" to 6 months of Indian summer. That is, before the ink dries on his new law of banking social security, it will be about as much use as a printout of an IP packet. In contrast, Mr Greenspan is signalling the start of an era of bloodletting. He may stain a few reputations and friendships in the process, and ruin his chance of a cushy retirement number at anywhere but CitiBank, but he's also offering the prize of the rest of the world at the end of the battle. Once the Internet Financial System settles down into a nice, stable, statistical industry (run by Americans, of course), then it's time to absorb the rest. That is, if he is allowed to get his way. Regardless of Mr Tietmeyer's preferences for "peace in our time", there is much activity in the digital cash munitions factories. Programmers and cryptographers are an undisciplined lot, as well as being more international than the TLAs give them credit for. It is unlikely that they will just hand over their invention, even if asked nicely. So what happens next? Well, banking on the Continent is being wooed with promises of protection, whilst the soldier ants of the Internet war machine are gathering on the border. Indigenous ant production may save them, and there again, it may not. To live in interesting times, indeed. -- iang 06 oct 96 iang@systemics.com -- References http://www.bog.frb.fed.us/BOARDDOCS/SPEECHES/S960919.htm is Alan Greenspan hinting that maybe they shouldn't have set up a central bank in the first place. http://www.ffhsj.com/bancmail/tpvtest.htm for an excellent display on the diplomacy of regulation. The rest of the above Reuters release: Tietmeyer said in the text of a speech to The Economic Club of New York that G-10 central bank governors were addressing the new payment forms because they may cause difficulties for central banks to ensure the integrity of payments. Tietmeyer noted European Union central bankers have agreed that only banks should issue the pre-paid cards. The policy is expected to be widened to include the rights to create and maintain Internet-based electronic cash systems. ``In our opinion, the same should definitely also apply to network money,'' he said. Tietmeyer said electronic forms of money tend to crowd out currency and deposit money, which may increase the potential for credit institutions to create money. ``Electronic money may impair the supervisory functions of the central bank, or, in other words, its function of ensuring the integrity of payments,'' Tietmeyer said in a text of the speech released in Frankfurt under embargo. ``That would increase the risk of crises in one country spreading out to engulf payment systems worldwide,'' he said. Electronic purses are plastic cards with a built-in micro-chip which stores the electronic cash value of an account and can be reloaded at special machines. The proposal to restrict such projects to banks is part of a new German banking law which is still under preparation but expected to be enforced in 1997. Tietmeyer said it was difficult to create definitive regulations for electronic money at ``this early stage''. ``The evolution of electronic money is only in its infancy. But it is a characteristic feature of today's world that tomorrow's world will be upon us in no time,'' he said. Electronic purses, also known as smart cards, are not yet available in cash-dominated Germany but tests are being run on several projects. Internet banking is slowly gaining credence in Germany after some of the top banks, including Dresdner Bank AG, launched securities trading accounts via the Internet. --- end forwarded text ----------------- Robert Hettinga (rah@shipwright.com) e$, 44 Farquhar Street, Boston, MA 02131 USA "'Bart Bucks' are not legal tender." -- Punishment, 100 times on a chalkboard, for Bart Simpson The e$ Home Page: http://www.vmeng.com/rah/