AP: Load Cash, Cruise Virtual Mall

[Robert Hettinga]

>WASHINGTON (AP)  A day in the financial life of a future consumer may
>begin something like this: Wake up, log in, download some e-cash into
>your PCís hard drive, then go cruise the virtual mall.
>
>Itís on the verge of happening, experts told Congress on Tuesday. But
>some caution that, without planning and coordination, the brave new
>Internet world of a cashless, checkless society could turn into an
>electronic From: listproc at mcfeeley.cc.utexas.edu
>Date: Sat, 20 May 1995 07:09:01 -0500
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>"On the Internet ... it is difficult to tell if a transaction has taken
>place since there is no central authority to track and report it," said
>David M. Van Lear, chief executive of Electronic Payment Services Inc.,
>a 2 1/2-year-old joint venture of four banks.
>
>"There are currently no standard operating regulations," he said. "In
>addition, there is no central authority to track and report on criminal
>activity, including counterfeiting and money laundering."
>
>It was all a bit mind-boggling for members of the House Banking monetary
> policy subcommittee, whose chairman, Rep. Michael Castle, R-Del.,
>observed, "Some of us can barely read our e-mail."
>
>But, more than 25,000 merchants in 150 countries are already on the
>Internet, selling or advertising products and services to 20 million
>users, a figure that will grow to 100 million within five years,
>according to MasterCard International.
>
>So, Castle said, "it is time for lawmakers to start grappling with the
>implications of ìan entirely new monetary system in cyberspace, one that
> transcends national governments and national boundaries."
>
>For instance, how will the Federal Reserve Board measure the amount and
>velocity of money flowing through the Internet? How will the Internal
>Revenue Service audit transactions conducted anonymously without paper
>records? What laws apply when a U.S. consumer orders a product from a
>business overseas and the goods never arrive?
>
>The lawmakers received seemingly conflicting advice from a panel of
>experts that included Van Lear, executives from MasterCard and Visa
>U.S.A. and Scott Cook, the chairman of the personal finance software
>company, Intuit Inc.
>
>They were told that government will be crucial to fostering stability of
> the new electronic monetary system and public trust in it but that
>premature or too much regulation could stifle innovation.
>
>The new technology, the experts said, will both open new avenues for
>fraud and offer new protections and safeguards.
>
>The system, some said, needs to be fully auditable so tax and criminal
>authorities can reconstruct a series of transactions but it also should
>protect Americansí privacy.
>
>For instance, David Chaum, the pony-tailed chairman of DigiCash Inc.,
>said his version of electronic cash, or e-cash, would provide the same
>privacy protection and anonymity in small transactions as traditional
>cash.
>
>Using encrypted codes and special software that offer much more security
> than the current unprotected transfer of credit card information via
>the Internet, consumers could download cash into the hard drive of their
> personal computers.
>
>They'd spend it by transferring it to merchants via computer. Or they
>could store the cash on "smart cards" equipped with a computer chip
>capable of storing far more information than the magnetic strips now on
>credit and debit cards.
>
>The cards then would function like pocket money and could be used in
>vending machines, parking meters and subway turnstiles equipped to
>receive them.
>
>MasterCard International and Visa are developing similar smart cards
>but, unlike Chaum's, theirs would generate an audit trail that could
>help law enforcement officials combatting tax evasion, counterfeiting
>and money laundering.
>
>Rosalind L. Fisher, executive vice president of Visa, a consortium of
>financial institutions, urged Congress to maintain public confidence in
>new forms of electronic payment by allowing them to be offered only
>through institutions to supervision by banking regulators.
>
>At the same time, she said, ìwe are concerned that additional regulation
> in this area will "stifle innovations ... subjecting many of these
>products to ... premature death."
>
>By way of example, she cited a Federal Reserve regulation that, if
>applied, could require machines accepting smart cards to issue paper
>receipts, ruining the economic viability of the cards for such small
>purchases as a 75-cent soda.
>
>Castle, who plans at least one more hearing on the future of money this
>fall, agreed that Congress should hold off on legislating for now but
>should be prepared to move quickly if problems develop.
>
>"I donít think we need regulations now, but we had better be ready to
>respond ... if some guy can crack a code and create a million-dollar
>account, transfer it around a couple times and end up in the Bahamas,"
>he said.
>

-----------------
Robert Hettinga (rah at shipwright.com)
Shipwright Development Corporation, 44 Farquhar Street, Boston, MA 02131
USA (617) 323-7923
"Reality is not optional." --Thomas Sowell
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