by Jason Barlow
Given the recent increase in consumer attention to the internet, the economic and social consequences of digital financial transactions will inevitably come into sharper focus.
Economically, internet cash schemes have several key differences from schemes currently implemented. The most significant of these is the transnationality of internet cash. Internet cash will have no borders, and will be accessable in any nation that has a connection to the internet. This could lead to destabilization of international currency exchanges. Any sufficently large internet cash scheme would interact significantly with global currency markets to make it a substantial force to be reckoned with.
Currency systems throughout time have been moving into the realms of pure abstraction. For example, prior to the Great Depression, the United States of America's currency was based on the Gold Standard. This meant that each unit of currency would entitle the holder to a share of the nations gold reserves, a direct correlation with the concrete. Later, the United States abandoned this method of giving value to their currency, implying that the currency only had value in reference to other currencies in international currency markets, thus making currency a more abstract idea. Digital cash becomes even more abstract, in that the currency no longer has any physical manifestation at all. It becomes little more than an ordered collection of electrons. In my mind this is disturbingly ethereal. A construct verging on the insane, seeing as the fates of millions of individuals will be based on something that does not have any kind of existence in the traditional sense of the word.
Internet cash also raises very serious problems in regard to taxation. As it is a transnational phenomenon, what nation's tax laws can be should be used in interpersonal transactions. For example, a buyer in Japan wants to purchase a "Software Widget MkV" from a seller in Canada, over digital lines that run through the USA. Who's tax laws are appropriate? And how could enforcement of these tax laws be implemented? This raises the possiblity for serious conflicts between nations themselves, as well as conflicts between nations and cyberspace, as to who's tax laws will apply in which transactions. Clearly, the transnational nature of the internet will vastly complicate questions of tax jurisdictions.
Not only will digital cash systems have economic consequences, but there will indubitably be social consequences. What role will electronic monitoring play in digital cash transactions? If the information about transactions conducted with digital cash is high, records for taxation and policing will be available; private and public institutions could maintain databases containing the individual's consumer habits. Compilation of these data can also provide disturbingly accurate psychological and medical profiles. Most implementations of digital cash have addressed this issue by ensuring that all transactions are anonymous. This preserves the free market aspect of the system. However, it also has its problems, such as the inablility to perform taxation auditing or fraud investigations, making internet cash a wonderful way to launder money, or escape local tax laws.
In most large (and small) Canadian cities, one can find panhandlers at busy streetcorners. Imagine a society where the principal method of financial transaction is digital. How does one give a panhandler a digital dollar? It's unlikely that they will have an internet account. This may serve to exacerbate wage disparity. Since cash is essentially untraceable, governments and financial institutions will most likely seek to marginalize paper cash transactions. They may come to be seen by upstanding (read: monied) citizens as being shady and part of the underground. These factors may create a two-tier economic system. The haves will be using electronic cash in one format or another, with cash transactions being reserved for the have nots. This may lead to devaluation of paper currency, making migration from the lower socio-economic strata into a higher one nearly impossible.
There are many potential problems associated with digital cash systems. It will be impossible to refuse to implement digital cash in order to avoid these problems. Transactions over the internet will become more and more common, as firms providing internet cash services propagate. Thus we must proceed into the future with an eye to these problems lest they evolve into overwhelming socio-economic problems. An ounce of prevention is worth a pound of cure.