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Re: Scenario for a Ban on Cash Transactions

In his usual fashion, Duncan Frissell has cogently made some arguments
as to why my scenario for a cashless society won't happen. I hope he's
right, but I doubt it. Since many of his comments are relevant to the
parallel discussion going on in the "Cypherpunks" list, I'm cc:ing
that list.

Duncan Frissell writes (from Britain):

> Why we won't have a cashless society - 
> 1) 60% of US personal transactions (by number not value) are still in cash.

But here in the States nearly everyone has either a credit card or an
ATM card. Most supermarkets now take plastic...ATM/credit card readers
are installed in the checkout lanes. The clerks tell me they actually
prefer the plastic, as so little work is needed. (Much faster than
checks, which most people not using plastic use). This installed base
of card readers already covers about 80% of all common transactions, I
would estimate.

> 2) Bribe income of the rulers would be affected.

A good point, also made by Keith Henson (in e-mail). Politicians want
cash for off-the-record transactions, their sexual liaisons, etc.
Maybe the corruption of politicians will be our salvation! (More
likely: exemptions...Congress exempts itself from many laws. Also, the
various onerous financial disclosure laws directly affect politicians,
and they made it into law.)

> 3) The illiterate, the retarded, and those with poor management skills depend
>    on a cash accounting system to run their lives.  They would not be able
>    to survive in a card-based economy.  20% of the US pop. have no checking
>    accounts and 40% have no plastic.

I notice plenty of semi-literate folks handing their plastic to the
cashier! Those without checking accounts tend to use "money orders,"
though, so mandating a conversion would be possible. Many of those
without checking or plastic accounts simply don't "qualify." (Trend:
qualification standards have been dropping every year) A
government-run credit/debit card program would ensure that everyone
got a card. Illiteracy is no problem, as there is virtually nothing to
read or write when using plastic. (Adding voice synthesis to some of
the card readers would even be seen as a selling point with the blind
or physically disabled.)

> 4) The destruction of the Underground Economy would be socially regressive
>    since it would fall most heavily on the poor.  Poor households spend twice
>    their reported income.

Possibly true, but this won't cut the mustard when it comes to passing
the laws. The laws will be presented as a way to "close the loopholes"
on the rich, not to soak the poor.

The talk of a "welfare credit card" to deal with the theft of welfare
and social security checks (a big problem in the U.S., obviously
affecting mostly the poor) will likely result in some form of
government-mandated card system in the next couple of years. 

> 5) The destruction of the Underground Economy would hurt the Gross Domestic
>    Product and cause recession.

Probably not a concern to the planners, but perhaps. It is not
politically correct to talk about this.

> 6) Foreigners need to be able to participate in the system.  Unless *all*
>    nations jointly go to an electronic payments system, there will be loopholes
>    that domestic residents can exploit.

But foreigners already have to comply with U.S. banking laws (though
of course they often don't, but that's another story). Foreigners
planning to convert pounds or francs to cash dollars would simply
convert them to electronic dollars, "charging" up their
debit/credit/etc. card. (As a parallel, the law from 1933 to 1976 or
so was that Americans could not possess gold in any form except
jewelry or rare coins. Other countries had no such laws. Did we see
British visitors flouting the laws by spending gold guineas?)

> 7) As long as foreign practices differ, domestic residents could get overseas
>    Visa debit cards and ATM cards and avoid the domestic social controls.

This could be a real stopper. Perhaps the U.S. and its New World Order
will push for a nearly simultaneous conversion, as part of the GATT
talks, the various monetary talks, etc.

Also, using foreign-based cards could simply be declared illegal.
Tie-ins to Immigration and Passport control could allow foreign
visitors to use their foreing cards for, say, 90 days, or
whatever....this would also be a way to control illegal immigrants who
overstay their temporary visa. The cleanest solution would be to tie a
"tempory visa" to a "temporary VISA" (pun intended), in which a
visitor would receive a card upon arrival, just as he now changes his
francs and marks for dollars.

> 8) The vast majority of the world's population is still in a cash or barter 
>    economy and could not be converted to plastic.  This would leave overseas
>    cash that would be a system loophole.
See above.

> 9) There is now no central financial authority.  Electronic payments are 
>    transmitted to the payor banks by various networks and the banks themselves
>    authorize payment.  A central authority would be expensive and technically
>    challenging.

Ah, but these clearinghouses are becoming more tightly integrated. A
VISA transactions costs about $0.10, and this is dropping yearly. A
typical transaction can be sent out over phone lines in seconds and
over high-speed ISDN lines in fractions of a second. Fiber optic lines
make it ridiculously easy.

Besides, it it not necessarily the case that there would be one
central authority which would validate transactions (that would be too
vulnerable to single-point failures and sabotage). Transactions would
mostly be similar to today's transactions, with records sent
periodically to the government(s).

> 10)A central financial authority would exceed the institutional abilities of 
>    current international arrangements, would be opposed by the banks (cost and 
>    independence), would constrain the growth of the financial services industry
>    and would run counter to the trend of financial deregulation.

Here in the U.S. the banks have acquiesced to nearly all of the
onerous new reporting regulations (cash transactions over
$10,000--soon to be less--and disclosure laws) resulting from the War
on Drugs. Banks are now creatures of the government, jumping when told
to. Also, when the various laws are seen as _profit sources_ (as in
the FBI's Digital Telephony Bill, which would compensate phone
companies for tapping customers) then banks will be happy to add a
service charge to cover their expenses.

Furthermore, and this goes to your point below as well, banks will
push for legislation that forces theri competitors to do exactly the
same as they are doing. There are virtually no new banks appearing in
the U.S....they want a nice, safe, profitable world, not competition.
Forcing all transactions to go through them would fit their fondest

> 11)The Iron Law of Regulation.  Regulations create profits for their avoidance
>    and eventually break down as people take advantage of those profit 
>    opportunities.  Financial deregulation throughout the world in '80s was 
>    *not* caused by a decision of governments to give up power.  Deregulation
>    was an acknowledgment that old controls were dead.

Banks are suffering as new alternatives have appeared. Hence the talk
fo repealing the Glass-Steagall Act. Banks may see a cashless system
as their way to get back into the center of things.

> 12)Networks were originally thought to be centralizing.  In practice they have 
>    proven to be decentralizing.  How many machines/people access Internet?  Who
>    has central control over Internet?

The Internet may be physically decentralized, but logically it is very
centralized, in the sense that all messages to newgroups appear in one
very large feed, albeit sent out in pieces. That is, everybody in the
world is basically seeing the same "sci.crypt" group.

More to the point, the credit card clearinghouses are amazing
centralized (logically, if not physically...and a friend of mine who
consults for VISA headquarters--located in the Bay Area--says nearly
all VISA transactions flow into their facilities). I can access my
credit card balances nearly anyplace in the world. How's that for

> 13)An encrypted, anonymous, zero-knowledge-proof-credentialed market could be 
>    conducted without reference to an external government-controlled payment
>    system.

Here we agree, completely. This is my hope. If we can deploy our ideas
quickly enough, the scenario I describe may be headed off.

> These are just a few of the problems to be overcome.  A change that massive 
> would upset so many apple carts in the US and abroad that I don't think it is
> much of a risk.
> Duncan Frissell

Thank you, Duncan, for your incisive comments, even though I disputed
most of them. This is an important debate, a lot more important, I
think, than debates on the rights of Martians and owls. (No offense to
Extropians intended!)

Our future is at stake.

--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.