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Scenario for a Ban on Cash Transactions


The recent discussions about black markets, loss of tax revenues, and
restrictions on the use of encryption lead me to speculate that moves
may be afoot to ban or severely restrict the use of cash.

Such talk of a "cashless society" comes up periodically, with some
taking a religious/conspiratorial view (electronic bank accounts
tatooed on our foreheads, fulfilling the "mark of the Beast" prophecy)
and others talking about how the "international bankers" have already
selected a system (to be implemented in a national emergency, perhaps
an Emergency Order following a series of bank collapses).

Some putative benefits of banning cash and replacing it with
electronic versions (such as debit cards, either privately issued or
issued by the government):

1. Faster and more complete tax collection, with the tax authorities
and implicit partner in all economic transactions (save for black
markets, but I'll discuss that later).

The "faster" part will be a one-shot gain, just as the witholding tax
system instituted in WWII as an emergency program was a one-shot
benefit. But such an immediate gain may be quite attractive to
planners faced with rapidly escalating national debt. ($4.5 trillion,
increasing by at least $400 billion a year...more if the "IOUs" for
social security are considered)

The "more complete" part will be an attempt to recapture taxes now
lost to the underground, or barter, economy. "Serious" black
marketeers, or dealers in illegal substances, will of course not be
greatly affected, but a shift to purely electronic money will hurt
their ability to move money (unless they control the banks and S&Ls,
as may be the case....but that's another story).

2. A general closing of the underground economy, separate from the
issue of recapturing lost tax revenues. As the underground economy
increases, especially to the levels seen in other countries, pressures
to "close the loopholes" (= cash) may mount. The failing "War on
Drugs" has already been used to justify many serious abridgements of
basic rights; applying the same logic to creating a cashless society
seems to be the next step.

3. "Welfare reform" by restricting the allowable expenditures that can
be made. For example, a welfare, food stamp, or AFDC recipient could
be barred from buying liquor with his or her "money." Electronic money
need not be "fungible," in the sense that all forms are
interchangeable--it is fairly easy to attach various restrictions to
the electronic databases which hold the money.

Such restrictions would meet with a lot of popular support, and so
could undercut the protests a bit. (Support may also come from the
"national identity card" aspects, as such a card would help to solve
the problem of illegal immigrants and those who move to jurisdictions
with better welfare benefits. I'm not _approving_ of this, merely
pointing out a source of support for "welfare cards.")

(Bypasses can still be done, as with food stamps which are sold in
exchange for booze. Ironically, the flourishing black market in food
stamps is a motivation for going to an "electronic welfare card,"
which is being talked about and which is an obvious precursor step to
the eventual ban on paper money cash.)

4. Fears of the growing ease of counterfeiting may push this shift
along. Color copiers are now so good that nearly undetectable
counterfeiting of U.S. currency is straightforward. Attempts to embed
conductive threads, holograms, etc., are helping, but the longterm
future is not bright for physical money (excluding gold, which has its
own problems that I won't discuss here).

(Note that foreign printing presses can quite easily produce excellent
counterfeit currency, for use in destabilizing foreign regimes, in
economic warfare, etc. Apparently the U.S. has supported the flooding
of Iraq with counterfeit currency. And Iraq has supposedly printed
vast amounts of counterfeit U.S. and European currency. Digital money,
cryptographically protected, is about the only protection against this

5. If the government controls and sets the protocols for electronic
money, this gives them de facto control over encryption systems and
protocols.  Use of non-approved protocols may be considered ipso facto
proof of money laundering, black marketeering, and tax evasion.

The Dennning/Rivest key registration proposal appears to be some
advance planning for creating a system in which the government is
effectively a third party in all communications (= transactions). 

I suggest we look at all such key registration proposals in this light.

6. More speculatively, the elimination of cash may be used to prop up
U.S. banks, which many feel are facing a rocky future. By making the
banks the "mediators" of such a government-mandated electronic money
system, this both "privatizes" the system and provides a new revenue
stream for these powerful lobbying interests. For example, your local
bank may issue the debit card and may take, say, 0.5% of every
transaction. The government might then take, say, 3% of every
transaction as its "cut." (The actual details are likely to be
hideously complex, along the lines of the V.A.T. taxes of Europe, and
so this example should only be taken as a rough example of what could

Now it has long been clear to me that the future of money lies in
electronic form, cryptographically protected. The prolific use of
credit cards for mail-order purchases points to the need for a purely
electronic form of usable money, as do systems like AMIX (which uses
VISA-type credits and debits). The issue is who creates this system,
and what controls exist.

It seems unlikely that the U.S. government will allow "competing
currencies" (one form of digital money, and arguably what we already
have with various tradable financial instruments, which rise and fall
in value depending on various forces) to spring into being, at least
not in forms that are truly like cash.

However, if the government creates this cashless society, then the government
will have unprecedented control over nearly all aspects of our lives.
All transactions, no matter how trivial, will be recorded, stored, and
subject to analysis. A complete audit trail of all purchases, food
preferences, entertainment choices, liasons with others, etc., will
exist. This is the concern David Chaum has eloquently raised, and
which he has been dealing with (partially) with his digital money and
untraceable transactions systems.

Furthermore, transactions which are deemed to be politically
incorrect, and there are dozens of obvious examples to choose from,
can be _outlawed_ by the mere typing of a few lines of instructions into
the appropriate data bases. (For example, someone arrested for DUI
tries to buy some beer..."Your transaction cannot be completed. Have a
nice day."  appears on the cash register. Or a pregnant woman--and
under Clinton's computerized health care system this will all be
known--tries to buy some cigarettes....)

Reread John Brunner's amazingly prescient "Shockwave Rider" for some
visions of a fully-computerized society.

This trend toward a cashless society, controlled by the government,
represents the greatest threat to our libery and our future I can

We need to start planning to head this off. Those interested in
"crypto anarchy" as one technological solution are encourage to get in
touch with me.

(I now have MacPGP, which makes things slightly easier than before,
but it's still a pain to download files and decrypt them. The
anonymous remailer services discussed on the "Cypherpunks" list should
help as well.)

Make no mistake, a government-run cashless society will be worse that
Orwell's worst.

--Tim May

Timothy C. May         | Crypto Anarchy: encryption, digital money,  
[email protected]       | anonymous networks, digital pseudonyms, zero
408-688-5409           | knowledge, reputations, information markets, 
W.A.S.T.E.: Aptos, CA  | black markets, collapse of governments.
Higher Power: 2^756839 | PGP Public Key: by arrangement.