The Cashless Utopia Mirage

By Jon Matonis
Forbes
Sunday, February 24, 2013

http://www.forbes.com/sites/jonmatonis/2013/02/24/the-cashless-utopia-mirage/

David Wolman's article The Anonymity Fantasy gets off on the wrong foot by claiming to know what we all "deserve" or "what we all want." As a reader, this is aggravating on multiple levels, but the pretentious fun doesn't stop there as we later learn that anonymous cash does not equal freedom and that "clinging to cash" is misguided.

I could be cynical here, but I really don't think it's about perfidiously advancing a thesis to promote his new book. I think David actually believes all of this despite what history teaches us.

Let's not kid ourselves, because the end of money, as we know it, really means the beginning of the transactional surveillance State, which makes this a serious debate about the boundaries of State power and the dignity of an individual.

Unfortunately, the real world extends beyond Wolman's polite corner of Oregon.

There are activists and dissidents in hostile regions paying for Internet blogs, food supplies, and safe harbor. There are payments being made to border guards on a daily basis to flee a murderous government somewhere. There are women selling baskets and blankets at street markets to feed their hungry families. There are cancer patients buying weed from a friend if their state doesn't accommodate medical marijuana. And even before and after the Third Reich, persecuted peoples have always needed a way to protect and transfer what little remained of their wealth.

The persistent war on cash has more to do with moralistic society than it does with civil society as Wolman claims. With ultimate tracking capabilities, how does Wolman decide when a government's "right" becomes a wrong? Does he defend the victimless crime laws against online gambling and consensual sex for money between adults? Does he defend confiscation of private sector wealth when a socialistic regime runs out of funds? Does he defend an orchestrated payments blockade against whistleblower site Wikileaks? Does he defend brutal government law enforcement measures in Syria and Gaddafi's Libya?

Anonymity and civil society do mix --- it is omnipotent violent government and civil society that do not mix.
Wolman is thinking like a technologist when he promotes the cashless utopia and, as a technologist, he's probably correct because paper cash is inefficient, problematic, and dirty. But it's mostly inefficient and problematic for the overzealous regulators and tax collecting apparatus.

Efficiency happens to be a very short-sighted and unintellectual argument. Selective breeding for certain 'preferred' traits is a vastly more efficient method and so is the training-from-birth selection criteria employed by totalitarian states that place athletes in the modern Olympics. I doubt Wolman would want to live in those efficient societies --- cashless or not.

Also, it's a good thing that Wolman partially credits consultant David Birch with his un-semantic argument about the differences between anonymity and privacy, because that way he doesn't have to shoulder the sole blame for such an untenable supposition.

Privacy, especially user-defined privacy, sits on a sliding scale that is defined by the individual. One person's idea of privacy may be anonymity from all and another person's idea of sufficient privacy may be privacy from aggressive marketing companies and governments but perhaps not from banks. The point being that it is the prerogative of the individual, not book authors or digital money consultants, to determine where one sits on that personal sliding scale.

Cash is not the enemy of the poor. Nor are the poor hurt by anonymity --- they are the ones who desire it the most. If that were not the case, we would see the informal, unlicensed economy shrinking rather than expanding. It's only the global repressionists who cannot accept human nature without moralizing that promote the end of anonymous cash.

As Web anthropologist Stowe Boyd proclaims, anonymous cash equals freedom and we should rejoice in that.

Visa, MasterCard 'Antitrust' Settlement Is Anticompetitive

By Jon Matonis
PaymentsSource
Friday, February 22, 2013

http://www.paymentssource.com/news/visa-mastercard-antitrust-settlement-is-anticompetitive-3013321-1.html

As part of last year's $7.9 billion preliminary settlement agreement in the class action against Visa and MasterCard, the card networks enacted a rule change allowing merchants to surcharge customers up to 4%. Effective Jan. 27, 2013, the optional surcharge is permitted on credit card transactions in an effort to defuse merchant allegations that the card brands were violating the Sherman Antitrust Act by unlawfully fixing interchange fees and rules.

The interchange fee structure of a four-party payment system is predicated on William F. Baxter's seminal piece from the 1983 Journal of Law and Economics. In this study, Baxter laid out the elements and cost structures for each of the participants in a four-party payment transaction – cardholder, issuer, acquirer, and merchant. Essentially stating that cost flowed principally to the issuer despite interest rates and annual card fees, Baxter economically justified the merchant (or acquiring) fee that would flow back to issuers now known as the IRF, issuer reimbursement fee.

Nearly 40% of Visa and MasterCard merchants are located in the 10 states that ban surcharging including California, New York, Florida, Texas and Massachusetts. Despite this and the proposed surcharging bans recently introduced in more than seven other state legislatures, it is easy to understand why some might see this settlement as a triumphant leveling of the competitive playing field.

"The biggest winners from the settlement are ordinary consumers," according to Todd Zywicki of George Mason University’s Mercatus Center. "Although some of the settlement's terms are potentially prone to abuse by retailers, most notably their new right to impose surcharges on those who use credit cards, it does affirm the core principle that interchange fees should be set by free markets and consumer choice rather than by judges or politicians."

Seemingly unaware of the historical reasons for creating the no-surcharge rule in the first place, Zywicki inverts the issue. Consumers are not the winners as the fee was always embedded into pricing and unfortunately this settlement does nothing to affirm free-market principles. Mandating no surcharges for the merchant participants of their early fledgling networks allowed the card brands to make them an all-or-nothing offer to entice novice cardholders. Had surcharging been permitted from the beginning, it would have been difficult to persuade cardholders, and therefore merchants, because consumers would be incentivized to stick with cash and check payments.

It's more likely that the card brands didn't want to permit merchants to offer discounts for cash transactions. Are they preventing card surcharges or are they preventing cash discounts? Is the glass half-full or is it half-empty? Maybe a “surcharge” is more palatable for consumers now if it is described as a discount for cash.

Sometime during the 1990s, when critical mass was reached and saturation occurred in the credit card payment networks, the tables were turned. Merchants no longer had to be persuaded to accept credit cards as a form of payment. At least in the U.S. and other developed payment markets, merchants realized the benefits of catering to consumer preference for cards and they didn't want to suffer by not offering that choice. The card brands’ acceptance strategy had come full circle, but the no-surcharging rule had not caught up.

With the all-or-nothing choice of "accept all payments at the same price or no card processing at all," once the "nothing" choice started to look relatively attractive, the card payment networks would be forced to open up. That's what alternative payment types such as Bitcoin start to permit. The card-branded networks would begin to see a disadvantage in prohibiting surcharging because all alternative forms of payment, including cash, must cross-subsidize the cards. This allows a non-card-accepting merchant to maintain a significant price advantage over a card-accepting competitor.

So market forces arguably would have eventually pushed Visa and MasterCard to permit surcharges. But the settlement, induced by class action litigation, is worse than superfluous. It is an unwarranted and unjustified encroachment into the practices of a private payment company. Just think of the lost capital and lost productivity of a seven-year, multi-attorney billing festival. Who do you think pays for that? Furthermore, this bit of central planning via the judicial system will remove the competitive advantage that alternative payment-only merchants like Bitcoin Store have now by forcibly removing the cross-subsidization that other merchants would have had to follow in accepting bitcoin or alternatives. If the natural market penalty for cross-subsidization is removed, then alternative payment-only merchants must begin to accept all payment types or lose business.

In a free market, payment networks would compete under their own network rules, not the government's or regulators’ rules. Sadly, the perceived pricing power referred to in the antitrust case stems less from alleged collusion among Visa and MasterCard’s member banks than from the multitude of state-granted privileges they enjoy that disadvantage new entrants (such as extraordinary bailouts for favored institutions, the notion of too-big-to-fail, generous deposit insurance, etc.).

The National Association of Convenience Stores, one of the plaintiffs in the case, rejected the proposed settlement for not going far enough, saying that the settlement failed "to introduce competition and transparency into a clearly broken market." While the merchant lobbyist’s reasons for believing this may not adhere to free market principles, it accidentally happens to be the correct legal and economic posture in this case because the settlement is anticompetitive. The answer, however, is not to coerce transparency and break the market even further.

Free market competition occurs at the macro payment system level – not within a given branded system by forcibly tinkering with the internal fees and surcharges and then declaring a win for consumers. No one is coerced into using a Visa or MasterCard product and merchants are not coerced into accepting plastic payments.

The problem of a payments oligopoly would solve itself because new market entrants would discover ways to bypass the entrenched networks entirely.

Silent Circle And Vertu Partner On $10,000 Phone

By Jon Matonis
Forbes
Thursday, February 21,2013

http://www.forbes.com/sites/jonmatonis/2013/02/21/silent-circle-and-vertu-partner-on-10000-phone/

Can a $10,000 smartphone buy happiness?

Probably not. But it can buy privacy and state-of-the-art encrypted communications. Luxury UK phone maker Vertu has partnered with secure communication provider Silent Circle for end-to-end voice and text encryption worthy of its designer product. The Rolls-Royce of phones meets the gold standard of mobile encryption.

Priced at $10,500 (7,900€) and sold through boutiques in 60 countries, this is the phone you never want to leave in a taxi cab accidentally. For those of us annoyed with friends and colleagues repeatedly showing off their new iPhone 5 or BlackBerry 10, Vertu offers the hand-crafted Ti model with 3.7-inch sapphire crystal screen and titanium case. More comparable to classy wristwatches and fine designer handbags, there's also Signature and Constellation models at even higher prices.

Now, each Android-based Vertu Ti will come already provisioned with Silent Circle out of the box. As the preferred private communications service partner to Vertu, each new Vertu Ti phone comes with a complimentary 12-month subscription to Silent Circle. Also in a clever viral move to spread adoption, each new subscriber will get five 30-day companion licenses which will operate on any platform and allow the customer to build their own circle of secure communications.

The famous and tailored Vertu Concierge service that sits at the heart of every Vertu phone experience was also specifically customized to support Silent Circle for a seamless blend of performance and customer service. These proprietary concierge apps offer round-the-clock live support and dedicated specialists available through text, voice and email.

More attentive to your needs than Siri and quickly accessed via the custom ruby key on the phone, Vertu Concierge caters to the demanding needs of the Vertu customer with a team of "lifestyle managers" covering all major time zones such as London, Paris, Milan, New York, Shanghai, Dubai, Moscow Hong Kong, and San Francisco.

Already in the circle are high-profile government departments, intelligence agencies, exiled leaders, and former heads of state. Thanks to the Vertu partnership, Silent Circle can now add Russian oligarchs, Persian Gulf oil sheiks, and Hollywood celebrities to that list.

Founded in 1998, Vertu has approximately 1,000 employees and 470 international points of sale. Last year, the company's sales approached 300 million euros, up from 266 million euros in 2011, and they have sold 300,000 devices over the last 10 years.

Silent Circle CEO Mike Janke, who will be speaking at next week's RSA Conference in San Francisco, explains how this unique partnership happened: "Over the past three years, Vertu's #1 request from high-net-worth customers has been secure communications. And after they spent 18 months visiting various companies and testing secure chat, phone and text products, they chose Silent Circle."

Analyzing the specific terms of the deal -- a bulk purchase of 35,000 one-year subscriptions without exclusivity conditions -- reveals why it is so critical for startups like Silent Circle to shy away from exclusive and usually lucrative partnership offers. Non-exclusivity may leave some money on the table in the short term, but the 32-person Silent Circle team doesn't seem to mind.

At this early point in the secure communications game, a single exclusive deal would nearly equate to an acquisition. And with most of the industry's leading players knocking on their door, Janke says "it is very tempting to sign an exclusive arrangement with a top phone manufacturer or a leading mobile network." However, Silent Circle remains solidly focused on the larger global market and that means non-exclusive coverage on every platform, everywhere.

Meanwhile, back at the bat cave, Silent Circle's latest Silent Text offering for Apple's iOS finally received approval yesterday after an arduous 21-day App Store process.

[Note: Silent Circle makes their source code available for review on github.]

Coinbase: Swapping Bitcoin Privacy for Banking Convenience

By Jon Matonis
PaymentsSource
Tuesday, February 19, 2013

http://www.paymentssource.com/news/swapping-bitcoin-privacy-for-banking-convenience-3013278-1.html

I've always had this nagging feeling about Coinbase’s exchange service and I just couldn't quite put my finger on it.

The San Francisco startup receives praise for its simple method of acquiring and selling bitcoins, a digital currency, via one’s U.S. bank account. In fact, Coinbase, founded in June 2012, is now selling over $1 million worth of bitcoins per month. The firm apparently ran out of inventory last week.

Then, it hit me. This is just like buying bitcoins from your bank – or from the Internal Revenue Service. If a bank offered a bitcoin purchasing option from its website, it would look like Coinbase. If Coinbase cut them in on the commission, it could probably white-label the service directly to banks.

Nothing wrong with that, but it means Coinbase fails to leverage the unique financial privacy aspects of the Bitcoin network. I do not fault founder and CEO Brian Armstrong, because he’s launched a much-needed Bitcoin service at a critical point in the digital money's evolution. Here's the rub: to address the fraud and compliance issues around the irreversible sale of a privacy product, Coinbase has simply removed the privacy.

Currently, Coinbase provides its exchange service in the U.S. only and it offers two methods for linking a bank account, “instant account verification” and “challenge deposit verification.” For those who are uncomfortable providing their private online banking usernames and passwords to Coinbase, the alternate method offers a typical challenge deposit process similar to linking a bank account to PayPal. (In challenge verification, a company makes two small deposits to the user’s account, and the user proves she is the accountholder by entering those amounts into the company’s site.) Coinbase does not allow for other less-intrusive payment methods, such as a cash deposit at a bank branch, via an intermediary like TrustCash, or cash bill payment at a retail location, through a network like ZipZap.

(Coinbase also signs up merchants to accept bitcoin and landed Reddit as a client last week.)

Coinbase is not licensed as a money transmitter in any state, nor is it registered as a money services business with the U.S. Treasury’s Financial Crimes Enforcement Network. I applaud the company for dispensing with these formalities because, since it is only selling a cryptographic token and not a financial instrument, such registration and licensure is not legally required.

The company says it has an anti-money laundering program, but it was not listed on their web site, and again, it is not a legal requirement for this business. Besides, the majority of what constitutes an AML program is already covered via Coinbase's strong relationship to the user's financial institution, with one of the exceptions being the identification of aggregated transactions from multiple bank accounts. But even this would be easy enough for Coinbase to determine based on the additional user data collected.

According to its privacy policy, Coinbase collects data about visitors to the site sent by their computer or mobile phone (e.g. IP addresses) and device information including but not limited to identifier, name and type, operating system, location, mobile network information and standard web log information. Those who sign up for the service may have to provide their name, address, phone number, email address, and bank or credit card numbers. Before using the service, customers may further have to give a Social Security number or birthdate, and they are subject to credit checks or identity verification by third parties.

Furthermore, there is no indication that Coinbase deletes the internal bitcoin wallet transfer logs or the associated bitcoin address logs. With more observable data points, the privacy of all bitcoin transactions can become cumulatively degraded.

By criticizing the collection of personal information for the purchase of bitcoin, a harmless cryptography product, I am not simply "letting the perfect being the enemy of the good." Caution is strongly advised when dealing with Coinbase. The potential exists for enhanced surveillance and network traffic analysis enabled by the supreme identity management that comes built-in with Coinbase. For instance, it would not be advisable to play Bitcoin casino games or poker with Coinbase-acquired bitcoins that weren't properly "mixed."

Of course, not everyone requires privacy in their transactions, so Coinbase may suit some users’ purposes just fine. However, Satoshi Nakamoto, the pseudonymous creator of Bitcoin, didn't sit down and code the decentralized protocol because he was upset about banking efficiency and trusted third parties. He wrote Bitcoin as a value transfer system that could survive hostile attacks.

When Armstrong says, "our goal is to make [B]itcoin easier to use, and (longer term) to help bring fast, cheap, international payments to the whole world" and "Bitcoin represents a fundamental leap forward in payment technology and it’s going to bring massive efficiencies to many areas of commerce," he's playing only to the low-fee, frictionless attributes of Bitcoin. He doesn't mean that Coinbase's goal is to facilitate payments for the anonymous and safe purchase of WordPress features in authoritarian countries or to bypass a politically-motivated blockade against WikiLeaks.

When it comes to the financial privacy and censorship-resistant payment attributes of Bitcoin, Coinbase falls short, and that, I think, is likely to impede the startup’s growth. The firm seems not to care. Its privacy policy states, "We may share your personal information with law enforcement, government officials, or other third parties when we are compelled to do so by a subpoena, court order or similar legal procedure."

When that time comes, you better believe that Coinbase will have a lot to share.

Bitcoin: Financial Deepening and Currency Internationalization

By JP Koning
Moneyness
Thursday, February 21, 2013

http://jpkoning.blogspot.com/2013/02/financial-deepening-and-currency.html

Much of the conversation about bitcoin adoption focuses on its use in goods and services transactions. Breaking bitcoin news, for instance, draws attention to the fact that the Internet Archive will be giving employees the option to be paid in bitcoin. This focus on brick & mortar transactions means that the role that bitcoin financial instruments—stocks, bonds, and derivatives—have to play in promoting bitcoin adoption often gets overshadowed.

I'm currently reading Barry Eichengreen's Exorbitant Privilege which goes into the mechanics of what it takes to create a truly international currency. Eichengreen points out that prior to World War I the dollar played a negligible role relative to the pound sterling in world markets, but by the mid 1920s it was the dominant unit for invoicing payments and denominating bonds. Eichengreen's theory is that the US dollar became the world's go-to currency because of the emergence of a very specific financial instrument—the banker's acceptance.

An acceptance is much like a bill of exchange, a financial instrument I explained in my last post. Say a merchant decides to pay for a shipment of goods with a personal IOU, or bill. If a bank first "accepts" the bill i.e. if it agrees to vouch for the IOU, then this gives the bill more credibility. It is now a banker's acceptance.

According to Eichengreen, around 1908 or 1909, a concerted effort to foster the growth of the US acceptance market began. Up till then, US banks had been prohibited from dealing in acceptances and branching abroad—both these limitations would be removed by new legislation. To promote liquidity and backstop the acceptance market, the Federal Reserve, established in 1914, was given authority to buy and sell acceptances via open market operations. Furthermore, these acceptances could legally "back", or collateralize, the Fed's note issue. This feature was particularly helpful. Although the Fed was also legally permitted to purchase government securities, government securities could not "back" the note issue. Acceptances, therefore, became the more flexible and preferred asset for Fed open market operations, at least until 1932 when the limitations on government collateral were removed. According to Eichengreen, the Fed was the largest investor in the acceptance market and sometimes held the majority of outstanding issues on its balance sheet.

By the mid-1920s foreign acceptances denominated in dollars exceeded those denominated in sterling by a factor of 2:1 and more central banks held US forex reserves than sterling. London was on the way out, and New York on the way in. By 1929, the amount of outstanding foreign public bonds denominated in dollars (excluding the Commonwealth) exceeded sterling bonds. The lesson here is that a key step in the sequence of internationalizing a currency is getting it to be used in financial markets. This involves the development of deep, liquid, and accessible markets in securities denominated in that currency.

What sort of financial deepening do we see in the bitcoin universe, and how might we compare it to the dollar's emergence in the 1910s and 20s?

There are a number of healthy signs of financial deepening. I count five competing bitcoin securities exchanges that provide a forum for trading bitcoin-denominated stocks and bonds. These include Cryptostocks, BTCT, MPEx, Havelock, and Picostocks. A sixth, LTC-Global, provides a market in litecoin securities, a competing altchain. Holders of bitcoin needn't cash out of the bitcoin universe in order to get a better return. Instead, they can buy a bond or a stock listed on any of these exchanges.

The largest publicly-traded company in the bitcoin universe is SatoshiDice, a bitcoin gambling website listed on MPEx. With 100 million shares outstanding and a price of 0.006 BTC, SatoshiDice's market cap is ~600,000 BTC which comes out to around $17 million. SatoshiDice IPOed last year at 0.0032 BTC. With bitcoin only trading at $12 back then (it is now worth $29), the entire company would have been worth $4 million. Given today's $17 million valuation, SatoshiDice shareholders have seen a nice return over a short amount of time—much of it provided by bitcoin appreciation.

While SatoshiDice certainly provides some depth to bitcoin financial markets it has the potential to shallow them out too. Because MPEx charges large fees to trade on its exchange, a few of the competing exchanges have created what are called SatoshiDice "passthroughs". Much like an ETF, a passthrough holds an underlying asset—in this case SatoshiDice shares on MPEx—and flows through all dividends earned to passthrough owners. As a result, investors can get exposure to SatoshiDice without having to pay MPEx's expensive fees. BTCT, for instance, lists two different SatoshiDice passthroughs (GSDPT and S.DICE-PT) which together account for more trading volume than all other stocks and bonds listed on BTCT.

SatoshiDice's sheer size is to some extent problematic since Bitcoin financial markets are not as deep as they might appear. Should something ever happen to SatoshiDice, a big part of the bitcoin financial universe's liquidity will be wiped out, and this would ripple out across the entire field of bitcoin securities. The same might have happened to banker's acceptances in their day, except for one difference—the Fed was willing to back the acceptance market up. In the bitcoin universe, there's no buyer of of last resort to provide liquidity support to SatoshiDice shareholders.

Another impediment to deeper bitcoin markets is the hazy legality of the bitcoin securities exchanges. The first major bitcoin securities exchange, GLBSE, was closed in October 2012 with no prior warning. According to this article, potential regulatory and tax liabilities convinced GLBSE's founder to shut it down on his own behest. If any of the existing bitcoin exchanges were to grow too noticeable, one could imagine the SEC (or its equivalent) knocking on their door and forcing the exchange-owner to pull the plug. This sort of regulatory uncertainty can only dampen the liquidity and depth of bitcoin financial markets.

US authorities, on the other hand, didn't need to heed the rules when they built the banker's acceptance market. They created the rules. If financial deepening in the Bitcoin universe is to proceed it will happen despite regulations and not because of them.

The last headwind to bitcoin financial deepening is bitcoin's volatility. Eichengreen writes that the seesawing of the pound sterling during the war period encouraged financial markets to search for a more stable unit in which to express debts. The pound had always been anchored to gold (or silver), but it was unpegged from its century's long gold tether when the war broke out. Although it was repegged in January 1916, this time to the dollar, this did not secure confidence in the sterling's value since the peg was dependent on American support. When this support was withdrawn at war's end, sterling fell by a third within a year. Through all of this, the dollar continued to be defined in terms of gold, a feature which no doubt attracted issuers.

Bitcoin, on the other hand, has more than doubled in just two months. Back in June 2011, it fell by 50% in just two days. Like pound sterling during the war, bitcoin's lack of stability will do little to promote deeper financial markets.

Although I've stressed the difficulties that bitcoin markets face in developing more depth, the sheer amount of financial innovation I'm seeing from those involved in the various bitcoin securities exchanges is impressive. I wish them the best. The more they build up bitcoin securities markets, the better an alternative bitcoin presents to competing currency units.

[Disclaimer: I am long SatoshiDice and several bitcoin mining stocks.]

Reprinted with permission. 

France Plans To Prohibit Cash Payments Over €1,000

By Jon Matonis
Forbes
Thursday, February 14, 2013

http://www.forbes.com/sites/jonmatonis/2013/02/14/france-plans-to-prohibit-cash-payments-over-e1000/

One of the best things about covering payments news is that you never run out of stories where various myopic governments attempt to restrict the flow of cash in a squeeze for revenue.

France becomes the latest as Prime Minister Jean-Marc Ayrault plans to erect new controls on cash transactions in order to tighten up tax collection and meet the country's optimistic budget deficit target of 3% of GDP. The government needs euros and they need some fast.

In the government plan labeled "Fight against fraud," France's fiscal residents would see the cash transaction limit decrease from €3,000 to €1,000 per purchase. However, in a nod to the exiled wealthy and what Wolf Richter calls the "Depardieu exception," those fiscal residents of a country other than France would have their cash transaction limits reduced from €15,000 to €10,000 per purchase. Legislative measures could be finalized by the end of 2013.

Richter illustrates the ban's impact with an example of purchasing a used car: "two crisp 500-euro bills and a single coin -- voilà, an illegal transaction." Used cars could easily cost more than €1,000 and accepting cash protects the seller, but the larger problem may be finding those 500-euro bills in the first place. While the southern coast of Spain was once believed to have the highest concentration of 500-euro notes in circulation, the distinctive purple bill has become more like the unicorn of Europe because they are rarely seen. The UK banned the sale of 500-euro notes at exchange offices in 2010.

"It has long been the dream of collectivists and technocratic elites to eliminate the semi-unregulated cash economy and black markets in order to maximise taxation and to fully control markets," writes Patrick Henningsen at the Centre for Research on Globalization. "If the cashless society is ushered in, they will have near complete control over the lives of individual people."

The anti-cashists have escalated this sad drama to a point where it has become like boiling a frog. The limits are incrementally lowered and lowered until one day, people wake up and realize that only fully traceable transactions are permitted in the new cashless society.

In many regions around the world, a strong and vibrant cash economy is actually underpinning the faltering national economies that no longer offer sufficient mainstream opportunities for their citizens. By some estimates, the global off-the-grid economy represents $10 trillion worth of economic activity per year. People will produce, consume, and trade in order to survive and bearer cash plays a critical role in that process.

The futuristic cashless society is marketed as being ultra-modern and at the forefront of technology. However, it is more like the last gasp of a dying behemoth and it is the poor that will suffer the most.

In responding to Simon's Black's description of Emperor Diocletian's 3rd-century tax reforms in All Transactions To Be Conducted In The Presence Of A Tax Collector, a reader commented that "Tax evasion always increases along with the tax burden." He continued, "In fact, it acts as a safety-valve against rebellion.  Since the rich will always have means to escape heavy taxation, the burden of bloated government bureaucracy will eventually fall the heaviest on those of lesser means."

Is there anywhere left to go if you don't welcome the fully-traceable cashless society? Spain recently banned cash transactions above 2,500 euros and Italy banned cash transactions above 1,000 euros.

France and other anti-cashist countries could quickly become nations of smurfs, referring to the practice of smurfing, which is a method of structuring cash transactions into smaller deposits of money to avoid cash reporting requirements.

B of A Snubs Two Gun Makers as Banking Becomes Politicized

By Jon Matonis

American Banker

Tuesday, February 12, 2013

 

http://www.americanbanker.com/bankthink/bank-of-america-snubs-gun-makers-as-banking-becomes-politicized-1056597-1.html

In one of the more memorable scenes from Michael Moore's Bowling for Columbine, the filmmaker walks into a rural bank in Michigan and promptly receives a free rifle for opening a new account. Moore quips, "Do you think it's a little dangerous handing out guns in a bank?"

Bank of America thinks it's more than just a little dangerous – it reportedly wants to discourage some gun manufacturers from even having accounts at the bank. Largely neglected by the mainstream press, two particular firearms manufacturer cases represent an emerging political climate in U.S. banking. I am not accusing anyone in the media of "bias by omission" concerning the stories of McMillan Firearms Manufacturing and American Spirit Arms, but these are fairly recent episodes with considerable consequence.

B of A justified freezing the deposits of 10-year customer American Spirit Arms for three weeks beginning Dec. 18 by saying that the deposits were held for "further review." Even though American Spirit Arms is a properly licensed firearms manufacturer which submits to regular audits by the Bureau of Alcohol, Tobacco, Firearms and Explosives and the Department of Homeland Security, Bank of America also said, "We believe you should not be selling guns and parts on the Internet." Happily, the Internet played a role in resolving the issue, as business owner Joseph Sirochman told anchorperson Megyn Kelly on Fox News' America Live.

Another disturbing episode involved McMillan Firearms Manufacturing in April 2012. In expanding a routine "account analysis" meeting to include the larger political issue of overall business purpose, Bank of America directly suggested that the firearms manufacturer take its business elsewhere. Bank of America replied to the allegations here and McMillan responded again here.

Beginning in a visible way with the 2011 full-scale banking and payments blockade against WikiLeaks, politically motivated acts by private financial institutions appear to be on the rise. Banks are beginning to use considerable discretion in deciding what constitutes an illegal act and sometimes even an immoral act. Freeze the funds first – ask questions later. After all, it's their bank, right?

Yes, private companies can choose who they elect to do business with. However, it has a chilling effect when the directives come in a soft way from regulators or from a financially-supportive government. Historically, banks exercise discretion and that discretion can escalate into subtle differences in treatment. Such as when to file a suspicious activities report or when a customer's deposits and withdrawals start to look excessively high.

Banks are increasingly in the role of enforcer and watchdog for the regulators. That is the basis of enforcement for many of the country's anti-money laundering laws and know-your-customer guidelines. The duty falls to the financial institutions and they are periodically reviewed as to their monitoring prowess. For the most part, banks do not have a choice in providing this quasi-enforcement role on behalf of the government, but it does set the stage for further encroachments into business and individual privacy.

Although Sirochman eventually succeeded in getting most of his deposits released, he still proceeded to open new accounts at a different bank.

Afterwards, Bank of America sent The Huffington Post this statement: "This customer's concerns have been resolved. Any spike in transaction volumes is routinely reviewed by the bank in order to protect our customers. This process is initiated regardless of the industry in which they do business." (Indeed, B of A still banks other gun manufacturers – a few weeks ago Chicago Mayor Rahm Emanuel sent CEO Brian Moynihan a letter urging the lender to pressure a firearm maker client to support new gun controls.)

Something clearly got bungled at Bank of America. No bank wants that kind of publicity. Either a few rogue regional managers acted on their own behalf or a policy directive from the corporate level was miscommunicated. This is a complex issue and typically wide latitude is given on how policy directives are implemented, including triggers for account freezes and their subsequent release. It is also nearly impossible to ascertain or confirm from where a subtle directive originates, which is probably why these stories weren't investigated further.

How ironic it would be to have the North Country Bank and Trust from Moore's film acquired by Bank of America in the next wave of bank consolidations.