Electronic money and banking: what should government's role be?

USA Today (Society for the Advancement of Education), May, 1997 by Michael N. Castle

Cards that are completely personal to the owner and useless to a third party offer enhanced security, but might have to overcome consumer concerns that too much privacy will be sacrificed in their use. Uniquely identifiable stored value, credit, or debit devices will leave traces that might permit the complete reconstruction of travel, purchases, and many other private actions. Again, I believe that the market will produce bargains, however Faustian, that a significant segment of consumers will choose to accept.

Perhaps the most sensitive personal information that an individual possesses is contained in his medical records. Pres. Clinton has caused some speculation about his medical history rather than releasing his complete records. Nevertheless, a significant number of New Yorkers are responding to subway ads and purchasing a card that consolidates personal medical information on a microprocessor-equipped smart card for easy access by emergency medical staff when needed. They not only are allowing strangers to accumulate this sensitive information, they are paying an annual fee of $45 for the privilege!

Genuine concerns persist regarding monetary system risk posed by a potential break-in to a system where transactions are permitted between stored value cards without reference to the issuing institution. In such a system, a successful "hacker" penetration theoretically might produce the ultimate counterfeit--value created that is indistinguishable from the original digital cash. Such counterfeiting, if managed once, could be replicated millions of times and sent around the world at the speed of light, thereby potentially causing the collapse of a currency.

Curiously, the worries that commonly were expressed when this was a foreign, European concept are muted now that a consortium of American banks have bought into the Mondex system, and an alliance with a major U.S.-based credit card issuer is under consideration. If there is true risk inherent in a stored value system, this is a valid subject of study, Congressional inquiry, and regulatory control.

The essentially supranational nature of the new electronic markets tend to frustrate those who would control or regulate their processes. Governmental efforts have failed to impose a lesser level of cryptographic security on Internet transactions when the market demanded higher levels. The perfectly logical rationale from the government's viewpoint was that commercial encryption should be subject to convenient penetration by law enforcement and other interested government agencies. This initiative failed, along with the entire "clipper chip" concept, once it became clear that the U.S. software industry would be placed at a fatal competitive disadvantage, while the rest of the world continued using the best available security. Countries like Singapore and China are headed for likely frustration in their efforts to restrict free access to the Internet for their populations while still maximizing its commercial advantages. The "Nanny State" concept is being rejected around the globe, and these sophisticated societies are not likely to be any more amenable to such impositions than Europe or the U.S.