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Privacy May Be an Important Reason for Currency Competition

Having long been an advocate for financial privacy (my main think tank URL is, perhaps I'm a little biased, but I think that the privacy issue could be a huge rallying cry for currency competition.

Many years ago, I organized and led opposition to the "Know Your Customer" proposal for greatly expanding the scope of bank spying on their customers (including source of funds for deposits) for the government and later raised awareness of the idea of the "carry tax" on cash that was being promoted by Marvin Goodfriend of the Richmond Fed at the time. Similarly, I've been sounding the alarm against international versions of the Know Your Customer proposal from the Financial Action Task Force.

Technological developments might make the implementation of a carry tax possible now. This article explains

A simple act of cash changing hands could become a lot less private. U.S. researchers have developed a new way of embedding traceable chips within "smart" paper—raising the possibility of banks and governments guarding against counterfeiting and even tracking the usage of paper money.

The new method of embedding radio frequency identification chips (RFID) in paper came from North Dakota State University in Fargo. Researchers used a patent-pending technology—called Laser Enabled Advanced Packaging (LEAP)—to transfer and assemble the traceable RFID chips on paper. Such "smart" paper could lead to new types of banknotes, legal documents, tickets and smart labels.

Now there are a new host of challenges to financial privacy–and I think they could help the cause of currency competition. Or, maybe, they'll be the demise of the current opportunity if we're not careful.

MasterCard in Nigeria where the National ID will be a credit card:

As part of the program, in its first phase, Nigerians 16 years and older, and all residents in the country for more than two years, will get the new multipurpose identity card which has 13 applications including MasterCard’s prepaid payment technology that will provide cardholders with the safety, convenience and reliability of electronic payments. This will have a significant and positive impact on the lives of these Nigerians who have not previously had access to financial services.
The Project will have Access Bank Plc as the pilot issuer bank for the cards and Unified Payment Services Limited (Unified Payments) as the payment processor. Other issuing banks will include United Bank for Africa, Union Bank, Zenith, Skye Bank, Unity Bank, Stanbic, and First Bank…
“Today’s announcement is the first phase of an unprecedented project in terms of scale and scope for Nigeria,” said Michael Miebach, President, Middle East and Africa, MasterCard. “MasterCard has been a firm supporter of the Central Bank of Nigeria’s (CBN) Cashless Policy as we share a vision of a world beyond cash. From the program’s inception, we have provided the Federal Government of Nigeria with global insights and best practices on how electronic payments can enable economic growth and create a more financially inclusive economy”.

More on the Nigerian developments here.

Not a fan of linking all of your financial records with the government's National ID card? Maybe you're interested in an alternative…

If using a National ID credit card doesn't appeal to you, be glad that you don't have to integrate biometrics into a "cashless" system. Explains "Cashless Society Leap Forward with Biometrics,"

Already, emerging economies in Africa and parts of Asia are utilizing mobile as the principal method of payment, and India is linking welfare payments to biometric signatures — using fingerprint, eye, face, or voice scans to verify identity and allow access to money.
Although cash hasn’t yet completely disappeared from our business dealings, the world’s most powerful tech and finance organizations are working to replace it with digital payments to be made via wireless devices and biometric scanning. This Orwellian move is a step in the direction of jeopardizing any hope of a future a free and open society.

As they say on late night television, but wait, there's more!

In the United States, the Internal Revenue Service had been claiming the right to snoop on our records without a warrant. I won't go into details here, but it brings us to my previous warnings on the importance of updating the Electronic Communications Privacy Act (ECPA) for currency competition. My think tank is a part of the Digital Due Process coalition to update ECPA in privacy-respecting ways.

While I have been posting a lot about both ECPA and the how the Financial Crimes Enforcement Network (FinCEN) affect Bitcoin and other alternative currencies, I should make more clear that while the FinCEN guidance on emerging payment systems is the most important and pressing threat to Bitcoin (and similar currencies), the way ECPA works its way through Congress and becomes law might be the most important way for the government to enforce FinCEN-led investigations and prosecutions.

How many people in the Bitcoin community are active in the fight to update ECPA in a privacy-respecting way?