Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: WEDNESDAY, July 26, 1995 TAG: 9507260055
SECTION: NATIONAL/INTERNATIONAL PAGE: A-1 EDITION: METRO
SOURCE: DAVE SKIDMORE/Associated Press Writer
DATELINE: WASHINGTON LENGTH: Medium
It's on the verge of happening, experts told Congress on Tuesday. But some caution that, without planning and coordination, the brave new Internet world of a cashless, checkless society could turn into an electronic ``Tower of Babel.''
``On the Internet ... it is difficult to tell if a transaction has taken place since there is no central authority to track and report it,'' said David M. Van Lear, chief executive of Electronic Payment Services Inc., a 21/2-year-old joint venture of four banks.
``There are currently no standard operating regulations,'' he said. ``In addition, there is no central authority to track and report on criminal activity, including counterfeiting and money laundering.''
It was all a bit mind-boggling for members of the House Banking monetary policy subcommittee, whose chairman, Rep. Michael Castle, R-Del., observed, ``Some of us can barely read our e-mail.''
But, more than 25,000 merchants in 150 countries are already on the Internet, selling or advertising products and services to 20 million users, a figure that will grow to 100 million within five years, according to MasterCard International.
So, Castle said, it is time for lawmakers to start grappling with the implications of ``an entirely new monetary system in cyberspace, one that transcends national governments and national boundaries.''
For instance, how will the Federal Reserve Board measure the amount and velocity of money flowing through the Internet? How will the Internal Revenue Service audit transactions conducted anonymously without paper records? What laws apply when a U.S. consumer orders a product from a business overseas and the goods never arrive?
The lawmakers received seemingly conflicting advice from a panel of experts that included Van Lear, executives from MasterCard and Visa U.S.A. and Scott Cook, the chairman of the personal finance software company, Intuit Inc.
They were told that government will be crucial to fostering stability of the new electronic monetary system and public trust in it but that premature or too much regulation could stifle innovation.
The new technology, the experts said, will both open new avenues for fraud and offer new protections and safeguards.
The system, some said, needs to be fully auditable so tax and criminal authorities can reconstruct a series of transactions but it also should protect Americans' privacy.
For instance, David Chaum, the pony-tailed chairman of DigiCash Inc., said his version of electronic cash, or e-cash, would provide the same privacy protection and anonymity in small transactions as traditional cash.
Using encrypted codes and special software that offer much more security than the current unprotected transfer of credit card information via the Internet, consumers could download cash into the hard drive of their personal computers.
They'd spend it by transferring it to merchants via computer. Or they could store the cash on ``smart cards'' equipped with a computer chip capable of storing far more information than the magnetic strips now on credit and debit cards.
The cards then would function like pocket money and could be used in vending machines, parking meters and subway turnstiles equipped to receive them.
MasterCard International and Visa are developing similar smart cards but, unlike Chaum's, theirs would generate an audit trail that could help law enforcement officials combatting tax evasion, counterfeiting and money laundering.
Rosalind L. Fisher, executive vice president of Visa, a consortium of financial institutions, urged Congress to maintain public confidence in new forms of electronic payment by allowing them to be offered only through institutions supervised by banking regulators.
At the same time, she said, ``we are concerned that additional regulation in this area will stifle innovations ... subjecting many of these products to ... premature death.''
By way of example, she cited a Federal Reserve regulation that, if applied, could require machines accepting smart cards to issue paper receipts, ruining the economic viability of the cards for such small purchases as a 75-cent soda.
Castle, who plans at least one more hearing on the future of money this fall, agreed that Congress should hold off on legislating for now but should be prepared to move quickly if problems develop.
``I don't think we need regulations now, but we had better be ready to respond ... if some guy can crack a code and create a million-dollar account, transfer it around a couple times and end up in the Bahamas,'' he said.
by CNB