thoughts on digital cash

[Eric Hughes <hughes@soda.berkeley.edu>]

Perry writes:

>If you take deposits and allow people to write drafts against those
>deposits you are going to fall under the commercial banking or
>securities laws no matter what you do, Eric. 

The definition of a bank is an institution that accepts demand
deposits.

From Black's Law Dictionary:

Demand deposits.  Any bank deposit which the depositor may demand
(withdraw) at any time in contrast to time deposit which requires
depositor to wait the specified time before withdrawing or pay a
penalty for early withdrawal.  Funds accepted by bank subject to
immediate withdrawal; such represent largest element in money supply
of the United States.

Certain mutual funds which have checks available to them do not fall
under this classification.  Such a mutual fund might be said to have
deposits, but they are not demand deposits.  You can't get them
whenever you like.  The fine print of such aggreements states that the
mutual fund company does not have to honor the check for up to thirty
days, typically.  Because of the time delay, such deposits are not
payable on "demand."

Mutual funds, though, since they are backed by securities, do fall
under securities law.  

Again, from Black's:

For purposes of the Securities Act of 1933 and the Securities Exchange
Act of 1934, the term "security" embraces all investment contracts,
and the test is whether the investment is made in a common enterprise
which is premised upon the reasonable expectation of profits solely
from the managerial or entrepreneurial efforts of others; such test
contains three elements: the investment of money; a common enterprise;
and profits or returns derived soleley from efforts of others.

I merely pointed out that if you're not a bank, you're not under
banking regulation.  This does not preclude regulation under other
laws.

Eric