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Date: Mon, 5 Jun 1995 22:10:12 -0500
To: www-buyinfo@allegra.att.com
Original-From: rah@shipwright.com (Robert Hettinga)
Subject: e$: The Future of Money
Status:   

>Responding to msg by rah@shipwright.com (Robert Hettinga) on
>Mon, 5 Jun  9:55 PM
>
>   [Sidebar]
>
>   The New World Of E-Cash.
>
>
>   The Good
>
>   +  E-cash is more convenient and flexible than traditional
>      money. It can be used by consumers and businesses, and
>      for everything from buying wares on the Internet to
>      lending a pal five bucks.
>
>   +  Banks that issue E-cash could find it much cheaper than
>      handling checks and the paper records that accompany
>      traditional money.
>
>   +  Consumers doing business on the Internet will find some
>      forms of electronic money afford much greater privacy
>      than using ordinary credit cards.
>
>
>   The Bad
>
>   +  Uncontrolled growth of E-cash systems could undermine
>      bank- and government-controlled money systems, giving
>      rise to a confusing and inefficient Babel of competing
>      systems.
>
>   +  E-cash may be less secure than bank money: Money stored
>      on a PC could be lost forever if the system crashes.
>
>   +  E-cash could foster a have and have-not society: Those
>      with PCs would have ready access to the stuff, while
>      those without, many of them low-income consumers, would
>      not.
>
>
>   And The Ugly
>
>   +  Money laundering and tax evasion could proliferate in
>      stateless E-money systems as criminals use untraceable
>      cyberdollars to hide assets offshore.
>
>   +  Counterfeiters could create their own personal mints of
>      E-cash that would be indistinguishable from real money.
>
>   +  If computer hackers or other criminals were to break
>      into E-cash systems, they could instantaneously filch
>      the electronic wealth of thousands or even millions of
>      innocent consumers.
>
>
>
>   In his pinstriped suit and wire-rimmed glasses, Timothy L.
>   Jones looks every bit the traditional British banker. Sure
>   enough, he has spent a dozen years at National Westminster
>   Bank PLC. But ask Jones what he is doing now, and he
>   responds with an intensity worthy of a Silicon Valley
>   entrepreneur. Leaning across a table, he waxes eloquent
>   about his new enterprise, Mondex, and the future of the
>   product he's selling: a new kind of electronic money.
>
>
>   Mondex, which was launched by NatWest, is not alone: A raft
>   of companies are developing their own forms of electronic
>   money, known as E-cash. E-cash is money that moves along
>   multiple channels largely outside the established network
>   of banks, checks, and paper currency overseen by the
>   Federal Reserve. These channels enable consumers and
>   businesses to send money to each other more cheaply,
>   conveniently, and quickly than through the banking system.
>
>
>   Some of the E-cash players are faceless, dubious outfits
>   that exist in cyberspace and can be traced only to a
>   post-office box -- in the physical world. But there are
>   plenty of others, ranging from techno-savvy startups with
>   names such as DigiCash and CyberCash, to corporate icons
>   including Microsoft, Xerox, and Visa. Citicorp is even
>   developing what it calls the Electronic Monetary System, an
>   entire infrastructure for using electronic money to be
>   issued by Citi and other banks.
>
>
>   These companies are part of a mass experiment that could
>   transform the way we think about money. In the process, it
>   could change consumers' financial lives and shake the
>   foundations of global financial systems and even
>   governments.
>
>
>   Digital money is the ultimate -- and inevitable medium of
>   exchange for an increasingly wired world. With E-cash,
>   you'll no longer need to carry a wad of bills in your
>   pocket or fumble for exact change. Instead, you might carry
>   a credit-card-size piece of plastic with an embedded
>   microchip that you will "load" up with E-money you buy with
>   traditional currency. Or, you might store your digital
>   coins and dollars -- downloaded over phone lines from your
>   bank or other issuer of E-money -- on your PC or in an
>   electronic "wallet," a palm-size device used to store and
>   transmit E-money.
>
>
>   This digital money will let you shop online, zapping money
>   to a merchant over the Internet, or perhaps paying for a
>   movie on demand over an interactive-TV network. It also has
>   the potential to replace cash and checks for everyday
>   purchases -- in stores, restaurants, or taxis that accept
>   E-cash. Businesses could also keep a stash of E-cash on
>   hand for buying office supplies, or use it to transact
>   directly with each other instead of going through banks and
>   electronic funds transfers.
>
>
>   The Start of a Revolution. In many ways, E-cash, which can
>   be backed by any currency or other asset, represents the
>   biggest revolution in currency since gold replaced cowrie
>   shells. Its diversity and pluralism is perfectly suited to
>   the anarchic culture of the Internet and the evolving web
>   of networks known as the Information Superhighway.
>   "Electronic commerce will literally change the way business
>   is done worldwide," says James G. Cosgrove, vice-president
>   and general manager for business multimedia services at
>   AT&T. "We're about to see another revolution similar to the
>   Industrial Revolution." Adds Richard K. Crone, senior
>   manager in the financial-services group at KPMG Peat
>   Marwick: "We're in the beginning stages of the
>   cash-replacement cycle."
>
>
>   But the advent of E-cash raises all sorts of questions,
>   most of which remain unanswered: Who should be allowed to
>   issue E-cash, and who will regulate those issuers? How will
>   taxes be applied in cyberspace, which transcends physical
>   boundaries? Who will set the standards? How do you ensure
>   that payments made over the Net will be secure? How will
>   consumers be protected? How will regulators police money
>   laundering and counterfeiting on private networks?
>
>
>   While regulators wrestle with these questions, technology
>   is remaking the monetary system. That's what Microsoft CEO
>   William H. Gates III had in mind when he bid for
>   personal-finance software maker Intuit Inc. He saw programs
>   such as Intuit's as the gateway that would draw millions of
>   consumers onto his online network where they could pay
>   bills, get financial advice, or shop, perhaps paying him
>   for access. But the Justice Dept. worried about Microsoft's
>   reach, and he abandoned the deal on May 20.
>
>
>   Tough break, but it will hardly slow Gates down. Microsoft
>   is working with Visa on a system for securing credit-card
>   transactions over the Net. But that's just one piece of a
>   much bigger problem Microsoft is trying to solve. Gates has
>   dozens of programmers busy devising a sweeping system,
>   Microsoft Network, to help people do business safely in
>   cyberspace -- or more specifically, in Microsoft's own
>   network and interactive-TV systems -- using a range of
>   payment options. Microsoft won't reveal much about its
>   E-cash plans, but, says Nathan P. Myhrvold, Microsoft's top
>   advanced-technology expert, "we're very interested in the
>   area."
>
>
>   They should be. The stakes are enormous. Seamus McMahon, a
>   vice-president at Booz, Allen & Hamilton, sees as much as
>   20% of total household expenditures taking place on the
>   I-way just 10 years from now. If any operation, whether
>   Citicorp or a startup such as Mondex, gained control of a
>   new medium for even part of those exchanges, it would have
>   the opportunity to charge royalties or fees for its use and
>   earn interest on the money sitting in its accounts. Even a
>   tiny charge, when applied to millions of transactions,
>   would be highly lucrative.
>
>
>   E-cash could also create a competitive free-for-all.
>   Because the Internet knows no boundaries, a company
>   offering E-money can gain direct access to millions of
>   consumers and businesses -- no matter what state or country
>   they are in. "The retail banking market will collapse and
>   give way to global competition," says Eric Hughes,
>   president of Open Financial Networks, a Berkeley (Calif.)
>   consulting firm. "Those [regional] separations don't work
>   on the Internet."
>
>
>   Winning Consumers' Trust. Governments' and central banks'
>   control of money flows has already been loosened, as shown
>   by recent currency and market crises in Mexico and
>   elsewhere. But with the growth of E-cash, money could flow
>   in and out of countries at lightning speed without being
>   traced, weakening governrnents' ability to monitor and tax.
>   "Over the long haul, this is going to lead to the
>   separation of economy and state," declares Bill A. Frezza,
>   president of Wireless Computing Associates and co-founder
>   of the advocacy group DigitaLiberty.
>
>
>   The growth of E-money could also be bad news for banks. If
>   other companies successfully offer their own brand of
>   digital cash, they could bypass banks as primary providers
>   of consumer financial services. The companies, not the
>   banks, might be consumers' first contact when they wanted
>   to obtain some digital money. "Banking is essential to the
>   modern economy, but banks are not," says J. Richard
>   Fredericks, senior managing director at Montgomery
>   Securities.
>
>
>   Commercial banks are, of course, entrusted with the
>   creation of money through the fractional reserve system.
>   They lend out more than they have on deposit, and they are
>   the only companies authorized to do so. If each unit of
>   E-cash had to be backed by a corresponding unit of
>   traditional currency, that would mean that lending out
>   E-cash wouldn't create new money. But if non-bank money
>   suppliers started backing just a fraction of their digital
>   cash with traditional money -- just as commercial banks
>   today keep on hand only a fraction of the deposits on their
>   books -- nonbanks, which are largely unregulated, could
>   create money just as commercial banks do now.
>
>
>   Bankers must move fast to keep up. Ronald A. Braco, head of
>   electronic banking at Chemical Bank, estimates that banks
>   have less than five years to come up with viable E-money
>   products before other players carve out the biggest chunks
>   of the market for themselves. "No question, it's for real,"
>   says Richard M. Rosenberg, chairman and CEO of BankAmerica
>   Corp. In a couple of years, "it will take off fairly
>   dramatically." The issues now: winning consumers' trust and
>   getting them to change their buying habits.
>
>
>   The first step in that direction could be to get consumers
>   used to using credit cards for purchases on the Internet.
>   Once that happens, the thinking goes, they may be willing
>   to start using E-cash systems.
>
>
>   One of the first purveyors of a Net credit-card system is
>   First Virtual Holdings, run by onetime celebrity manager
>   Lee Stein. Stein has launched a relatively simple system
>   using E-mail that lets consumers use credit cards on the
>   Internet without fear that their account numbers will he
>   misappropriated. The card numbers are stored away on a
>   protected computer system and never pass over the network.
>   Instead, consumers register with First Vlrtual by phone and
>   receive I. D. numbers in exchange for their card numbers.
>   When they want to buy something electronically, they simply
>   supply their I. D. number to the merchant.
>
>
>   First Virtual, which became the first secure payment system
>   on the Net when it handled its first transaction last
>   October, is growing fast. Stein won't disclose activity
>   levels, but he says volumes are increasing by 16% a week.
>   "If you make it simple and safe, people will use it," he
>   says. First Virtual has enlisted such merchants as Apple
>   Computer, Reuters, and National Public Radio -- which sells
>   transcripts of programs.
>
>
>   Most electronic extensions of the credit-card system,
>   though, are built around encryption -- scrambling card
>   numbers so they can pass safely on electronic networks. For
>   example, CyberCash Inc., a Reston (Va.) startup, is cutting
>   its teeth on a deal with Wells Fargo & Co. for encrypted
>   credit-card transactions over the Internet.
>
>
>   Visa and MasterCard, not surprisingly, are also working to
>   make credit cards usable on the I-way. Visa is, among other
>   things, developing with Microsoft a system using encryption
>   technology that they hope will become an industry model.
>   "We want to be sure that the industry as a whole has
>   certain standards," says Carl F. Pascarella, president and
>   CEO of Visa USA. Meanwhile, MasterCard has teamed with
>   Netscape Inc., a maker of security and browsing software
>   for the Internet, to pursue a similar goal.
>
>
>   Wiltshire Experiment. Credit-card-based systems have the
>   advantage of seeming familiar to consumers. But the card
>   systems don't do everything cash can: They're not
>   anonymous, they do not work person-to-person, and they have
>   credit limits. They're also not suited for the grassroots
>   economy the Internet makes possible, where any outfit or
>   individual can sell its wares, whether a newsletter or a
>   stock tip.
>
>
>   That's where E-cash comes in. But E-cash needs to be just
>   as secure as credit cards for people to use it. David Chaum
>   CEO of pioneer DigiCash in Amsterdam, has done the most to
>   solve this problem. He has devised a clever system that
>   uses so-called public-key cryptography that, like
>   encryption, makes it possible to send sensitive information
>   over the Net. But Chaum's big breakthrough was "blinding"
>   technology, which lets the issuing bank certify an
>   electronic note without tracing whom it was issued to. The
>   result: Your E-cash, unlike an encrypted credit-card
>   transaction, is as anonymous as paper cash.
>
>
>   Chaum has yet to announce firm deals with companies to
>   issue his E-money. But in a pilot, some 5,000 consumers are
>   part of a DigiCash marketplace, using the equivalent of $1
>   million in E-money to do business with 50 companies, from
>   Encyclopaedia Britannica Inc. to Ricky's Junk Shop. Chaum's
>   technology is also at the heart of CAFE, a European
>   Commission-sponsored project to develop an electronic
>   wallet for pan-European use.
>
>
>   CAFE'S setup is similar to Jones's Mondex system. "Imagine
>   it's the same as physical money, and you won't be far off,"
>   says Jones. Mondex money will be created initially by
>   NatWest and a partner, Midland Bank PLC, which will then
>   "sell" it to customers. The E-money is loaded onto
>   credit-card-size "smart" cards with embedded microchips.
>   The cards can be used in point-of-sale terminals or fit
>   into electronic wallets that can transmit money to
>   merchants or -- just as with traditional cash but not with
>   credit cards -- to other consumers. Mondex money is still
>   in pilot form, but the company has signed up 40,000
>   consumers and over 1,000 retailers in the Wiltshire town of
>   Swindon to test Mondex money beginning in July.
>
>
>   CyberCash, too, is experimenting with E-cash in addition to
>   its credit-card-based system. In the E-cash system,
>   consumers will set up E-money accounts at their banks.
>   Then, using proprietary software provided free of charge by
>   CyberCash, they can go about their business on the Net. At
>   the end of the day, CyberCash will clear all the E-money
>   transactions and convert E-cash balances back to dollars.
>
>
>   No matter who develops the best E-cash, consumers and
>   businesses alike stand to reap sizable benefits. No longer
>   will consumers have to wait for change or scurry to
>   automated teller machines for cash -- out of sight, they
>   hope, of the nearest mugger. E-cash will let businesses
>   carry out transactions around the world without
>   transferring bank funds -- and they will be better able to
>   reach a large population of technologically savvy, often
>   affluent consumers.
>
>
>   Moreover, because E-money is basically software, it can be
>   programmed to do things that paper money could never do.
>   Microsoft's Myhrvold explains that electronic money could
>   be earmarked for special purposes, with conditions on where
>   it can be spent. For example, a business could have an
>   electronic version of petty cash to be used for supplies at
>   an Office Depot -- but not a beer at the local tavern. Or
>   parents could wire to a college student E-money that is
>   designated for rent or books. "There will be new forms of
>   smart money and payment systems that can only be done
>   online," says Myhrvold.
>
>
>   Along with the opportunities, though, comes huge
>   uncertainty. Existing monetary regulations don't cover all
>   of the potential uses of E-cash. Nathaniel S. Borenstein,
>   a computer scientist and co-founder of First Virtual, says:
>   "One of the hardest questions merchants ask us is, 'When do
>   we owe taxes?' " That's not a trivial question: With
>   E-money, the merchant could be in Guam and the buyer in
>   Canada, while First Virtual's computers are located in
>   Ohio. So whose sales tax do you pay? Borenstein's advice to
>   merchants: "I tell them to consult a lawyer."
>
>
>   There's also a major potential for crime (page 78). E-money
>   can be easily sent in and out of a country undetected,
>   facilitating money laundering on a grand scale. Tax evasion
>   could become a matter of pushing a button. And without
>   foolproof cryptography, counterfeiters could replicate the
>   series of digits that constitutes E-money. Governments
>   would be hard pressed to monitor or control stateless
>   E-money. "Digital cash is a threat to every government on
>   the planet that wants to manage its currency," says David
>   E. Saxton, executive vice-president of Net1, a startup that
>   has developed a secure way to send electronic checks across
>   the Internet.
>
>   Battle of the Logos. Even law-abiding citizens and
>   companies using E-money could be victims of sophisticated
>   hacker attacks. Says Colin Crook, senior technology officer
>   for Citicorp: "We have to assume electronic money will be
>   the subject of sustained attack from all kinds of people."
>
>
>   Another open question -- and a large one -- is the role of
>   banks in the new electronic world. "E-cash will be offered
>   by both banks and nonbanks," says Chaum. Sure enough,
>   DigiCash or CyberCash could join forces with AT&T or
>   Microsoft just as easily as with Citibank. Having one of
>   those companies dispensing E-cash directly to consumers
>   could do serious damage to banks' main link with their
>   customers.
>
>
>   Even if banks are involved, they could find other players
>   taking center stage. Early entrants to the E-money business
>   could set the operating standards for digital cash. And the
>   nonbanks could even devise systems that would make their
>   logos the first thing people see. William M. Randle, senior
>   vice-president at Huntington Bancshares, warns that banks
>   could become "buttons on a network operated by other
>   entities."
>
>
>   Improbable? Not really. Take a look at credit-card
>   processing. Twenty years ago, banks owned the
>   card-transaction-processing business. Now, close to 80% of
>   card transactions are processed by nonbanks such as First
>   Data Resources Inc., says KPMG'S Crone.
>
>
>   A similar erosion has occurred in wholesale banking, where
>   banks have ceded to such outfits as General Electric
>   Information Services and Electronic Data Systems Corp.
>   nearly the entire market for transferring payment data to
>   corporations, leaving themselves the mundane, low-margin
>   service of transferring money between corporations. Today,
>   says banking consultant Edward E. Furash, although the
>   situation is improving, fewer than 100 banks offer
>   full-service electronic data interchange, as the data part
>   of payments transmission is known. "We should do more of
>   that," says Richard Matteis, head of Chemical Banking
>   Corp.'s Geoserve unit.
>
>
>   Banks have one key advantage: a near lock on consumers
>   trust wnen It comes to depositing money. For that reason,
>   many bankers tend to dismiss the threat implicit in
>   E-money. "The reason financial institutions are going to
>   win in the long run is trust," says Kawika Daguio, the
>   American Bankers Assn.'s federal representative on
>   operations and banking. Indeed, many E-cash makers are
>   choosing to partner with banks because of that consumer
>   trust. "We've positioned ourselves to work with the banking
>   industry and make sure that if there are heroes in this, it
>   is the banks," says William N. Melton, CEO of CyberCash.
>
>
>   But Microsoft's bid for Intuit last fall gave bankers a
>   collective scare. And even though the deal did not work
>   out, banks worry that Microsoft could hook its 70 million
>   Windows customers into the electronic-commerce networks
>   that it is developing -- with or without banks' help. If
>   Microsoft becomes a utility, "it will take a lot of
>   business from the banks," says Montgomery's Fredericks.
>
>
>   Now several of the biggest banks are pushing hard to
>   develop E-money. Citibank's Electronic Monetary System is
>   one of the most advanced bank offerings, although officials
>   there stress that it is still in development. It would
>   allow retail and business customers of Citi -- or any other
>   bank that paid to use Citi's system -- to convert money in
>   their accounts to electronic cash. Citi customers would
>   also have access to a credit line they could draw down in
>   E-money, just as they would use a credit card. Banks
>   "should be experimenting," says Sholom Rosen,
>   vice-president for electronic commerce at Citi. "That's
>   what we're doing."
>
>
>   Beside NatWest and Midland, Bankers Trust Co. has a group
>   dedicated to electronic commerce. And even some regional
>   banks see opportunities. There is Wells Fargo's work with
>   CyberCash. First Union Corp., based in Charlotte, N. C.,
>   has created an electronic mall for Internet transactions.
>   Even Cardinal Bankshares Inc., a $607 million Lexington
>   (Ky.) bank, on May 24 formed a new subsidiary, Security
>   First Network Bank, which aims to grow into a full-service
>   interactive bank on the Internet. "We'll be a one-branch
>   bank in Kentucky with potential customers all over the
>   U.S.," says CEO James S. Mahan III.
>
>
>   While it's not clear who the players will be 10 or even 5
>   years from now, it is inevitable that much E-money will
>   originate outside the purview of central banks such as the
>   Federal Reserve or the Bank of England, which are largely
>   responsible for traditional monetary regulation. And that
>   has major policy implications.
>
>
>   To begin with, consumers using the stuff could be extremely
>   vulnerable. When consumers lose their credit cards, they
>   are only liable for the first $50 of charges on the card.
>   But for now at least, if a consumer misplaced, say, a
>   Mondex card, it would be like losing cash. Similarly, if
>   your digital coins are stored on the hard drive of your PC,
>   a system crash could wipe out your electronic savings.
>
>
>   Electronic money also creates vast opportunities for tax
>   evasion, money laundering, and other financial crime.
>   "There is an imaginable potential for a serious challenge
>   to the whole political and social order," says First
>   Virtual's Borenstein. "I am not all that sanguine that the
>   government has the control they think they do." For people
>   trying to avoid paying taxes to a national government, the
>   lure of a stateless currency would be powerful indeed.
>   Already, "virtual currencies" serving electronic
>   communities of people are springing up on the Internet.
>   Then there's the issue of the volatility of money. The
>   effects of highspeed electronic trading have been painfllly
>   apparent in market crises over the past several years.
>   Market swings could be magnified if consumers and
>   businesses could send their money around the globe with the
>   touch of a button on a PC.
>
>
>   The monitoring of national money supplies will also change.
>   While some regulators dismiss the issue, arguing that
>   E-money will inevitably convert back to traditional money
>   and get counted, other experts disagree. Martin Mayer, a
>   guest scholar at the Brookings Institution, says that he
>   expects the Fed to lose control of a significant portion of
>   the money supply.
>
>
>   One of the most pitched debates is likely to be over
>   privacy. As a society, we have relied on a system that
>   allows us to keep some transactions private by using cash,
>   while others, such as big-ticket purchases, are entrusted
>   to a credit-card company or a bank. Competing forms of
>   E-cash offer wildly differing degrees of privacy:
>   DigiCash's E-money offers virtually complete anonymity,
>   while every dollar you spend using the credit-card-based
>   systems would leave a trail. The problem will be balancing
>   individuals' rights to privacy with government's need to
>   monitor money flow and trace eriminal aetivity.
>
>
>   Breaking Into The Mint. More dire is the possibility of
>   major break-ins to E-money systems -- the electronic
>   equivalent of penetrating the U. S. Mint. If someone were
>   to crack the sophisticated code of, say, the DigiCash
>   system, he could start minting unlimited amounts of his own
>   DigiCash money.
>
>
>   That's why it is all the more alarming that some regulators
>   and even some central bankers still seem unconcerned with
>   the advent of E-cash. After a breakfast speech to several
>   hundred business leaders in San Francisco last March, Fed
>   Vice-Chairman Alan Blinder was asked whether the Fed is
>   studying the regulatory issues surrounding digital cash.
>   His answer: "Digital what?" Then, after pausing a moment,
>   he added: "It's literally at the thinking stage."
>
>
>   Slowly, though, some regulators are beginning to explore
>   the concept of E-money so they can set policies. The
>   Federal Reserves payment-systems committee is meeting with
>   Chaum of DigiCash and other E-money pioneers. State tax
>   collectors are looking at the issue of taxing electronic
>   commerce. The Financial Crimes Enforcement Network is also
>   weighing in. Even the White House technology office is
>   taking a big interest.
>
>
>   It's not a moment too soon. "There's no going back," says
>   DigitaLiberty's Frezza. "The genie's out of the bottle. The
>   Internet doesn't have an off switch." And no amount of
>   wishing by regulators will change that.
>
>
>   By Kelley Holland and Amy Cortese in New York, with bureau
>   reports.
>
>
>   [Sidebar]
>
>   Early Money. Seashells, odd rough-hewn coins -- the first
>   money was flexible, highly distinctive, and exchanged in
>   multifarious ways. Objects were gradually replaced by
>   standardized commodities such as gold and silver, and these
>   in turn by paper money. Yet even early currency was at
>   first issued by private banks, local governments, and
>   others -- usually backed by gold silver. Diversity
>   abounded.
>
>
>   [Sidebar]
>
>   Bank Money. The current money system is largely monolithic.
>   Nearly all major countries have a single system of national
>   currencies and bank checks. Most have elaborate
>   infrastructures built around commercial banks and a central
>   governing body such as the Federal Reserve Board. That
>   entity is usually the only facility allowed to issue money.
>   Perhaps because of their monopoly structures, money systems
>   tend to resist change and innovation. Traders can move
>   millions of dollars around the globe at the touch of a
>   button. But the small check-based transactions of consumers
>   can take days to clear. And chartered airplanes physically
>   transport billions of checks around the country every
>   workday.
>
>
>   [Sidebar]
>
>   E-cash.
>
>
>   E-cash may be technologically light-years ahead of early
>   money. But in many ways, it is closer to seashells than
>   greenbacks. E-cash is digital money that moves through a
>   multiplicity of networks instead of the current bank
>   system. It comes in lots of guises, is created by lots of
>   individual parties, and is backed by anything constituents
>   demand as an accepted medium of exchange: gold, dollars,
>   yen, whatever. It is the ultimate, and inevitable, currency
>   for the wired world. Competition is intense, producing
>   rapid innovations. Using money downloaded to your PC or a
>   palm-size electronic "wallet," you'll be able to zap money
>   to merchants on the Net -- or buy a newspaper faster than
>   you can grab a greenback. If you're a business owner, you
>   can bypass banks and move E-cash directly to customers and
>   suppliers. The advantages: convenience, speed, cost
>   savings. The technology is complex, but to the user, E-cash
>   is as easy as pushing a button.
>
>
>   [Sidebar]
>
>   Patrolling The Black Holes of Cyberspace
>
>
>   At first glance, the offer sounded legitimate. First Bank
>   of the Internet began advertising to Net browsers in March,
>   offering a new way to pay for goods over the Net. By
>   sending First Bank a check for at least $20, cybershoppers
>   would get a Visa automated teller machine card "loaded"
>   with their money -- less a hefty 5% commission -- which
>   they could then use to obtain cash or pay for their
>   cyberwares.
>
>
>   First Bank got numerous inquiries -- but it also drew some
>   unwanted scrutiny. State banking regulators warned that it
>   couldn't call itself a bank. The Office of the Comptroller
>   of the Currency sent an advisory to banks and regulators
>   warning them about FBOI. First Bank CEO Vinn K. Beigh, a
>   34-year-old computer technician in Des Plaines, Ill., says
>   he will soon pull his Net listing. But he is still looking
>   for a way to cash in on the wave of electronic commerce.
>   "There is quite an interest in buying on the Internet," he
>   insists.
>
>
>   He's got that right. First Bank isn't the only upstart
>   trying to cash in on the demand. Consider World Trade
>   Clearinghouse Ltd., which offers a gold-backed
>   cybercurrency with cashlike anonymity that offers
>   "protection from bureaucratic snoops, nasty ex-spouses, and
>   lawsuit-hungry lawyers." And officially opening this month
>   is the Internet Online Offshore Casino, run out of the
>   Turks and Caicos Islands, which says it will accept all
>   manner of E-money and pay customers 10% annual interest on
>   the balances they leave in an offshore bank the company
>   recently bought.
>
>
>   These enterprises may never draw in a meaningful number of
>   customers. And many raise red flags to regulators. But the
>   government is also a long way from getting a good fix on
>   the activities of the much larger number of ostensibly
>   legitimate E-money players.
>
>
>   Money Launderers. The regulatory gaps are sizable. For
>   example, Stanley E. Morris, director of the Treasury
>   Dept.'s Financial Crimes Enforcement Network (FincEN),
>   points out that there are no laws that limit the balance of
>   electronic currency that can be loaded onto an E-cash card.
>   That could create a major opportunity for money launderers.
>   And no one has determined how to define whose tax laws
>   apply to transactions in cyberspace (page 8). Says John H.
>   Gibbons, assistant to the President for science and
>   technology: "If you go to a cashless society, it makes it
>   very diffficult tracking cash income or reportable income.
>
>
>   Right now, regulators are simply trying to understand the
>   new technology and how the market is evolving. Last April,
>   the Federal Trade Commission held a conference to examine
>   the impact of electronic commerce on consumer protection.
>   FinCEN iS organizing a colloquium on electronic currency to
>   be held later this fall. "We are nowhere near the issue of
>   regulating it," warns FinCEN's Morris. "We're one step
>   back." Given the speed with which the market is advancing,
>   regulators don't have much time to close that gap.
>
>
>   By Amy Barrett in Washington
>
>
>   [Sidebar]
>
>
>   Call It E-Money Management
>
>
>   It's a Saturday morning sometime in the not-too-distant
>   future, and you sit down at your PC to do a little
>   end-of-the-month planning. First, you call up the balances
>   from your various accounts -- credit-card, checking,
>   savings, and E-cash -- and break down your spending by
>   category. Oops, better cut down on those pricey dinners.
>
>
>   Your investments are offsetting some of those expensive
>   habits -- at least you hope so. Finding out is as easy as
>   a few clicks of a mouse button, as you call up your
>   investment portfolio. Hmmm, it may be time to get into a
>   more aggressive mutual fund. So you quickly dispatch a
>   software "agent" to rustle up profiles for the
>   top-performing funds. By filling out an online form, you
>   transfer some of your holdings into a hot overseas fund.
>
>
>   Just as technology is revolutionizing money, it is also set
>   to transform the way we manage our money. "Complexity has
>   gotten beyond the level that people can deal with," says
>   Scott D. Cook, the founder and chairman of Intuit Inc. With
>   programs like Quicken, Intuit's best-selling personal-
>   finance software, Cook aims to make that complexity easier
>   to deal with.
>
>
>   "Automatic Agents." Indeed, today's programs for
>   personal-finance management and home banking are giving
>   consumers unprecedented control over their financial life.
>   But this is just the beginning. Gradually, programs are
>   linking users to banks, electronic bill-paying services,
>   and a broad array of vendors of financial advice that is
>   starting to be offered online. Colin Crook, head of
>   technology at Citibank, says software programs will be
>   constantly at work for you, for instance, using information
>   gleaned on the Net to optimize your portfolio. "You're
>   going to hand off your personal affairs in cyberspace to
>   automatic agents who represent vou." says Crook.
>
>
>   The competition to supply these services will be heated.
>   Microsoft Corp.'s Bill Gates saw the potential -- one
>   reason why he was willing to shell out $2 billion for
>   Intuit. With that deal blocked by the Justice Dept.,
>   Microsoft is throwing its considerable resources behind
>   Microsoft Money, a home-grown personal-finance package
>   already offered by Chase Manhattan and others. From Money,
>   Microsoft expects to link customers to a variety of online
>   financial services, including electronic bill-paying. Bank
>   of America and NationsBank recently paid $35 million for
>   Meca Software, which makes Managing Your Money. And Intuit,
>   for its part, has just released new programs for selecting
>   mutual funds and planning for retirement and children's
>   college education.
>
>
>   Expect banks to jump into the fray. They are sitting on a
>   gold mine of valuable data: their customers' payment
>   information. The statements they send out, though,
>   typically offer Iittle value, and consumers' credit-card,
>   checking and savings, and investment accounts are handled
>   separately. "There is an opportunity to consolidate that,"
>   says Richard K. Crone, a banking consultant at KPMG Peat
>   Marwick.
>
>
>   With so much available to help you manage your financial
>   affairs, someday you may be able to bag those Saturday
>   mornings at the computer and instead just take a long
>   weekend.
>
>
>   By Amy Cortese in New York
>
>
>   [Sidebar]
>
>   Where E-Cash Will Take Off
>
>
>   E-cash networks should flourish as the growth of electronic
>   purchases outstrips that of traditional commerce.
>
>   [Chart on traditional and electronic of purchases 1994,
>   2000 est. and 2005 est. omitted]
>
>
>   [End]

-----------------
Robert Hettinga (rah@shipwright.com)
Shipwright Development Corporation, 44 Farquhar Street, Boston, MA 02131
USA (617) 323-7923
"Reality is not optional." --Thomas Sowell
>>>>Phree Phil: Email: zldf@clark.net  http://www.netresponse.com/zldf <<<<<