SCENARIO FOR A BAN ON CASH TRANSACTIONS The recent discussions about black markets, loss of tax revenues, and restrictions on the use of encryption lead me to speculate that moves may be afoot to ban or severely restrict the use of cash. Such talk of a "cashless society" comes up periodically, with some taking a religious/conspiratorial view (electronic bank accounts tatooed on our foreheads, fulfilling the "mark of the Beast" prophecy) and others talking about how the "international bankers" have already selected a system (to be implemented in a national emergency, perhaps an Emergency Order following a series of bank collapses). Some putative benefits of banning cash and replacing it with electronic versions (such as debit cards, either privately issued or issued by the government): 1. Faster and more complete tax collection, with the tax authorities and implicit partner in all economic transactions (save for black markets, but I'll discuss that later). The "faster" part will be a one-shot gain, just as the witholding tax system instituted in WWII as an emergency program was a one-shot benefit. But such an immediate gain may be quite attractive to planners faced with rapidly escalating national debt. ($4.5 trillion, increasing by at least $400 billion a year...more if the "IOUs" for social security are considered) The "more complete" part will be an attempt to recapture taxes now lost to the underground, or barter, economy. "Serious" black marketeers, or dealers in illegal substances, will of course not be greatly affected, but a shift to purely electronic money will hurt their ability to move money (unless they control the banks and S&Ls, as may be the case....but that's another story). 2. A general closing of the underground economy, separate from the issue of recapturing lost tax revenues. As the underground economy increases, especially to the levels seen in other countries, pressures to "close the loopholes" (= cash) may mount. The failing "War on Drugs" has already been used to justify many serious abridgements of basic rights; applying the same logic to creating a cashless society seems to be the next step. 3. "Welfare reform" by restricting the allowable expenditures that can be made. For example, a welfare, food stamp, or AFDC recipient could be barred from buying liquor with his or her "money." Electronic money need not be "fungible," in the sense that all forms are interchangeable--it is fairly easy to attach various restrictions to the electronic databases which hold the money. Such restrictions would meet with a lot of popular support, and so could undercut the protests a bit. (Support may also come from the "national identity card" aspects, as such a card would help to solve the problem of illegal immigrants and those who move to jurisdictions with better welfare benefits. I'm not _approving_ of this, merely pointing out a source of support for "welfare cards.") (Bypasses can still be done, as with food stamps which are sold in exchange for booze. Ironically, the flourishing black market in food stamps is a motivation for going to an "electronic welfare card," which is being talked about and which is an obvious precursor step to the eventual ban on paper money cash.) 4. Fears of the growing ease of counterfeiting may push this shift along. Color copiers are now so good that nearly undetectable counterfeiting of U.S. currency is straightforward. Attempts to embed conductive threads, holograms, etc., are helping, but the longterm future is not bright for physical money (excluding gold, which has its own problems that I won't discuss here). (Note that foreign printing presses can quite easily produce excellent counterfeit currency, for use in destabilizing foreign regimes, in economic warfare, etc. Apparently the U.S. has supported the flooding of Iraq with counterfeit currency. And Iraq has supposedly printed vast amounts of counterfeit U.S. and European currency. Digital money, cryptographically protected, is about the only protection against this threat.) 5. If the government controls and sets the protocols for electronic money, this gives them de facto control over encryption systems and protocols. Use of non-approved protocols may be considered ipso facto proof of money laundering, black marketeering, and tax evasion. The Dennning/Rivest key registration proposal appears to be some advance planning for creating a system in which the government is effectively a third party in all communications (= transactions). I suggest we look at all such key registration proposals in this light. 6. More speculatively, the elimination of cash may be used to prop up U.S. banks, which many feel are facing a rocky future. By making the banks the "mediators" of such a government-mandated electronic money system, this both "privatizes" the system and provides a new revenue stream for these powerful lobbying interests. For example, your local bank may issue the debit card and may take, say, 0.5% of every transaction. The government might then take, say, 3% of every transaction as its "cut." (The actual details are likely to be hideously complex, along the lines of the V.A.T. taxes of Europe, and so this example should only be taken as a rough example of what could happen.) Now it has long been clear to me that the future of money lies in electronic form, cryptographically protected. The prolific use of credit cards for mail-order purchases points to the need for a purely electronic form of usable money, as do systems like AMIX (which uses VISA-type credits and debits). The issue is who creates this system, and what controls exist. It seems unlikely that the U.S. government will allow "competing currencies" (one form of digital money, and arguably what we already have with various tradable financial instruments, which rise and fall in value depending on various forces) to spring into being, at least not in forms that are truly like cash. However, if the government creates this cashless society, then the government will have unprecedented control over nearly all aspects of our lives. All transactions, no matter how trivial, will be recorded, stored, and subject to analysis. A complete audit trail of all purchases, food preferences, entertainment choices, liasons with others, etc., will exist. This is the concern David Chaum has eloquently raised, and which he has been dealing with (partially) with his digital money and untraceable transactions systems. Furthermore, transactions which are deemed to be politically incorrect, and there are dozens of obvious examples to choose from, can be _outlawed_ by the mere typing of a few lines of instructions into the appropriate data bases. (For example, someone arrested for DUI tries to buy some beer..."Your transaction cannot be completed. Have a nice day." appears on the cash register. Or a pregnant woman--and under Clinton's computerized health care system this will all be known--tries to buy some cigarettes....) Reread John Brunner's amazingly prescient "Shockwave Rider" for some visions of a fully-computerized society. This trend toward a cashless society, controlled by the government, represents the greatest threat to our libery and our future I can imagine. We need to start planning to head this off. Those interested in "crypto anarchy" as one technological solution are encourage to get in touch with me. (I now have MacPGP, which makes things slightly easier than before, but it's still a pain to download files and decrypt them. The anonymous remailer services discussed on the "Cypherpunks" list should help as well.) Make no mistake, a government-run cashless society will be worse that Orwell's worst. --Tim May -- .......................................................................... Timothy C. May | Crypto Anarchy: encryption, digital money, tcmay@netcom.com | anonymous networks, digital pseudonyms, zero 408-688-5409 | knowledge, reputations, information markets, W.A.S.T.E.: Aptos, CA | black markets, collapse of governments. Higher Power: 2^756839 | PGP Public Key: by arrangement.