Re: E-cash and Interest

[tcmay@got.net (Timothy C. May)]

At 5:26 AM 1/10/96, Tim Philp wrote:
>I had been doing some thinking about E-cash and some of the implications.
>It seems to me that there is another element in the discussion that has
>not gotten very much consideration.
>When you have your money in the bank, you are earning interest on the
>money (albeit not very much! <g>) and that money continues to earn

What interest, if any, is a contractual arrangement a customer makes with a
bank. Some banks pay no interest at all, some pay low rates, some pay more.
A function of a lot of factors.

Before saying that digital cash will not pay interest, one would have to
know the type of digital cash and the ancillary contracts that may go with
it.

For example, the online clearing model could certainly still have
interest-bearing accounts, in the underlying currency or commodity that
represents the store of value to be paid out when the digital cash is
redeemed. It might be cumbersome, but it would certainly be possible for an
agent to buy what I'll call a "digital bond," worth one unit at time zero,
1.1 unit after one year, and so on.

>interest until it is withdrawn. If you write a check to pay for
>something, that ends your interest accumulation for that money.

Actually, writing the check does not end your accumulation of interest. The
payout of funds to the check casher is what ends the accumulation. Some
parallels with online clearing digital cash.


>With the E-cash systems that I have seen, you generate your own E-cash
>and have it signed by a 'bank' At that moment, it becomes like cash in
>your wallet and you loose interest that this money could be earning.
>Has this issue been addressed, or am I missing something?

Depends on the exact type. From your description, you're looking at the
model in which one closes out a bank account (presumably interest-bearing),
and says "Give it to me in unmarked bills" (loosely speaking). Well, if the
digital cash is really just a call on funds still held (and perhaps used,
hence they can give interest), then interest is still possible. If the bank
has given out funds to some other bank, then they can no longer pay
interest. (If this sounds confusing, it is because even in digital cash
systems one must think about where the store of value really is, who has
it, who must trade it for the numbers representing cash, etc. "There is no
digital coin" means more than just that there is no unforgeable thing that
is unforgeable the way a gold coin is; it also means that the numbers are
not actual value, that the value exists in other places...it gets murky,
though.)

In any case, most initial uses of digital cash will more closely resemble
currency exchanges (which it can be argued is a better model....), for
which the customer usually pays a fee, or there are buy/sell rates that
give the moneychangers in the temple their pound of flesh.

--Tim May

We got computers, we're tapping phone lines, we know that that ain't allowed.
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Timothy C. May              | Crypto Anarchy: encryption, digital money,
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