The Issue

"Money does not have to be created legal tender by government: like law, language and morals it can emerge spontaneously. Such private money has often been preferred to government money, but government has usually soon suppressed it."
--F.A. Hayek, Nobel Laureate

With the rapid growth of the Internet, alternatives to government money have arisen in electronic form. Will Hayek again be right? Will government suppress this new medium of exchange?

So far, no government agency has come out to say that new regulations are needed. But the Federal Reserve Bank and many agencies have weighed in with their opinions. The Treasury has sponsored a conference on the subject, and the Board of Governors of the Bank for International Settlements (founded to promote co-operation of central banks) has commissioned studies on the possible effects.

Perhaps one reason there hasn't been more government interference so far is that most electronic money is still denominated in standard currencies like U.S. dollars. Some systems are merely ways to store and transfer your dollars electronically. But this may not always be true. E-gold is denominated in gold and other precious metals.

As long as it remains free, electronic money in whatever form will only make transactions easier to complete. The prospects for privacy and security are also promising. Strong encryption will keep the transactions safe, and depending on the system used, the transactions may be completely anonymous and entirely outside of the banking system.

Last year, the Cato Institute devoted its annual monetary conference to the future of money, and many Internet policy groups have fostered discussion on the subject. A recurring theme is that a free system of electronic transactions will enhance the use of the Internet as a global marketplace.

Below are highlights of the Cato conference, other documents that explore the future of money, an overview of some of the competing payment systems, and a variety of links for more information.

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The Solutions

Partner Organizations

Cato Institute

Last year's Cato Institute annual monetary conference focused on The Future of Money in the Information Age. Many of the speeches and panel discussions from the conference are available online in Real Audio and in the book "The Future of Money in the Information Age."

Highlights from the conference include:

• Electronic Money and Monetary Policy: Separating Fact From Fiction by Bert Ely
• The Internet and the End of Monetary Sovereignty by Bill A. Frezza
• The Technology Revolution and Monetary Evolution by Lawrence H. White

Frank Browne and David Cronin of the Central Bank of Ireland discuss how technology can lead to laissez-faire banking in Payment Technologies, Financial Innovation and Laissez-Faire Banking.

Federal Reserve Bank Chairman Alan Greenspan talks about Regulating Electronic Money in this speech reprinted in Cato's Policy Report.

Next month, Cato will sponsor its fifteenth annual monetary conference, Money and Capital Flows in a Global Economy.

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Other Groups and Individuals

Many other groups have done research on this topic. Below are some highlights:

Heritage Foundation

Adam Thierer calls for Congress to protect the Internet from state and local taxation on services and income generated across state borders in Why Congress Must Save the Internet from State and Local Taxation, in order to ensure its continued growth.

Creating a Financial Services Industry for the 21st Century touches on the need to lighten the regulatory burden on the financial services industry to create more competition and allow for the development of electronic currency and other forms of payment.

Foundation for the Advancement of Monetary Education

In Hard Money & Cyber Cash, Christopher Whalen discusses how the banking and monetary systems need to adapt to the coming technologies.

In The Search for an Ideal Money and Free Choice of Currencies, Henry Hazlitt discusses returning to the gold standard and the denationalization of the monetary system. Although Hazlitt was writing before the advent of electronic money, this is the theoretical groundwork for privately issued e-money.

The White House

As part of its drive for a Global Information Infrastructure, an interagency working group has prepared a Framework for Global Electronic Commerce. It is available in full or as an executive summary. The document discusses the administration's goals for making the Internet a free and open electronic marketplace.

Hudson Institute

Alan Reynolds discusses the effects of e-money on commerce and the IRS in E-Money and a Tax System for the Twenty-First Century. Reynolds argues that the voluntary compliance system will become more important as more and more transactions take place in electronic secrecy, and that the best way for the IRS to encourage compliance is to simplify the rules and lower the rates.

This interview with Walter Wriston, former CEO of Citicorp, discusses smart-cards, cryptography, and other monetary issues.

Simson Garfinkel analyzes the technology behind the Internet for Hotwired. Garfinkel has looked at e-money several times. Dumb Money takes a look at CyberCash and Is the Web Set for SET? examines the Secure Electronic Transmission Protocol.

Bank for International Settlements

Electronic Money: Consumer protection, law enforcement, supervisory and cross border issues is the result of a study commissioned by the G-10 (Group of Ten Countries) to understand the policy issues facing governments as a result of electronic money and to identify issues that would benefit from international co-operation.

Other studies on the Security of Electronic Money and the Policy Issues Facing Central Banks are also available.

Internet Society

The Internet Society sponsors annual conferences on the Internet. Discussions run from technology to social issues surrounding the Internet.

Digital Cash and Monetary Freedom from the 1995 conference discusses how e-money can transform the future of commerce.

Possible Economic Consequences of Electronic Money looks at some of the possible downsides of e-money in regards to crime, foreign exchange and other issues.

U.S. Department of the Treasury

The Office of the Comptroller of the Currency maintains a page on the Treasury's Electronic Money Initiatives.

The Office of Tax Policy has prepared an assessment of the effects on taxation of increased electronic commerce in this paper entitled Selected Tax Policy Implications of Global Electronic Commerce.

Last fall the Treasury sponsored a conference on Toward Electronic Money & Banking: The Role of Government. Attendees came from central banks, governments, the banking industry, and technology companies. Highlights available online include:

• An Introduction to Electronic Money -- a background paper authored by agency staff.
• Opening Remarks by Treasury Secretary Robert Rubin.
• Summaries of the panels on E-Money Systems: Case Studies and Privacy Issues.

Miscellaneous Resources

• Electronic Money: Threat to Law Enforcement, Privacy, Freedom, or All Three? was a plenary session at the 1996 Computers, Freedom and Privacy Conference at MIT.
• The Unintended Consequences of E-Cash was presented at the 1997 Computers, Freedom and Privacy Conference. It discusses the side-effects of electronic money.
• Digital Cash and Electronic Money was a conference sponsored by the Columbia (University) Institute for Tele-Information.
• The proceedings of a House of Representatives subcommittee hearing on the Future of Money are available online.
• Emerging Electronic Methods for Making Retail Payments is a Congressional Budget Office report on the policy implications of electronic payments.
• The End of Cash by James Gleick first appeared in the New York Times Magazine.

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Background Information

E-Money Payment Systems

Gold & Silver Reserve, Inc. / E-Gold

E-gold is a true free-market alternative to the present monetary system. Not only are payments and transfers handled electronically, they are 100% backed by precious metals. A detailed explanation of their philosophy is available.

MasterCard / Visa

Not to be left behind, MasterCard and Visa have worked with heavy hitters like IBM, GTE and Microsoft to develop the Secure Electronic Transactions Protocol. The purpose is to provide a simple and secure way for consumers to make purchases over the Internet.

Digicash

Digicash has been developing electronic payment mechanisms since 1990. A summary of how their technology works is contained in this online brochure.

Digicash is the creator of ecash. Ecash converts money into electronic form (digital signatures) which can be used to pay for goods and services, and other transfers. The payer is anonymous, but the transactions of the receiver are verified so they can be deposited in their account.

You must open an account with an ecash bank. Currently Mark Twain Bank of St. Louis, MO is the only U.S. bank, but a list of other international banks is available.

CyberCash

CyberCash is a way to send your credit card information over the Internet in a more secure environment. It also offers a way to convert money into electronic tokens that can be stored on your hard drive and used like cash.

First Virtual

First Virtual holds your credit card information and authorizes the payment on behalf of the accepting merchant based on the PIN number that you provide. All payments are confirmed via e-mail before charges are made to your credit card.

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Links to Other Information

The Journal of Internet Banking and Commerce

Online Banking Association

Digital Money Online

Digital Money & Transactions at the EFF.

Transaction.Net

The Future of Money is a production of WNET's NetStation. It discusses the electronic future of money.

Links to Other Links:

• Electronic Commerce Links
• Electronic Money or E-Money
• Electronic Cash
• Electronic Payment Schemes

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