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JIBC Vol 2 No 1

Table of Contents

1. Editorial

2. Notices

3. Abstracts/Extracts of Web Feature Articles
-- See http://www.arraydev.com/commerce/jibc/current.asp
***********
The Legal Report
Contributing Editor Richard Field
-- http://www.arraydev.com/commerce/jibc/9701-2.htm
************
Internet Stock Exchange Survey
By Alan Majer
--http://www.arraydev.com/commerce/jibc/9701-3.htm
************
Electronic Commerce in Java
By Qusay H. Mahmoud
-- http://www.arraydev.com/commerce/jibc/9701-4.htm
************
How Do We Protect the Civilian Infrastructure?
By Stewart A. Baker and Paul R. Hurst
-- http://www.arraydev.com/commerce/jibc/9701-5.htm
***************
Untraceable Payments, Extortion, and Other Bad Things
By Tim May
-- http://www.arraydev.com/commerce/jibc/9701-7.htm
*************
Hettinga's Best of the Month
Contributing Editor Robert Hettinga
-- http://www.arraydev.com/commerce/jibc/9701-8.htm
*************
The Impact of IETF's EDI over Internet
Recommendations on World-wide Electronic Commerce
By Rik Drummond
-- http://www.arraydev.com/commerce/jibc/9701-9.htm
***************
Advice on Electronic Commerce Programs for Small to Medium-sized
Enterprises
Contributing Editor Mary-Anne Goldsworthy
-- http://www.arraydev.com/commerce/jibc/9701-10.htm
***************
Over the Water -- The View from the UK
By David G.W. Birch
-- http://www.arraydev.com/commerce/jibc/9701-12.htm
****************
The Bundesbank and Electronic Cash
By Christopher Kuner
-- http://www.arraydev.com/commerce/jibc/9701-13.htm
******************
Extranet: The "Third Wave" in Internet Electronic Commerce
By Nahum Goldmann
-- http://www.arraydev.com/commerce/jibc/9701-18.htm
*****************
Internet-Based Financial EDI: The Case of Bank of America and
Lawrence Livermore National Laboratory Pilot
By Arie Segev, Jaana Porra, Malu Roldan
--http://www.arraydev.com/commerce/jibc/9701-17.htm
*****************
The Unisys Internet Banking Site: A European Perspective
By Michael T. Hennigan
--http://www.arraydev.com/commerce/jibc/9701-19.htm
*****************

4. Administrative Notices



* * * * * * * * * * * * * * * * * * * * * * * * *
JIBC Special Anniversary Edition
Volum 2 No 1, January, 1997

=============
Editorial
=============
By Gordon Jenkins
jenkins@...
http://www.gordjenkins.com

We are into our second year and I would like to thank all our
regular contributing editors. Please take time to read the list.

They are an impressive group of people. Without them, we would
not have a Journal.

Legal Editor: Rich Field
Security Editor: Bob Hettinga
Innovation Editor: John Gehl
U.K. Editor: David G.W.Birch
Australian Editor: Mary- Anne Goldsworthy
UNCTAD Editor: Carlos Moreira
Eastern Europe: Will Keenan
Southern Europe: Mauro Cipparone

This year we hope to broaden our geographic and topic scope. My
"New Years' Resolutions!" are to attract more material from Asia
and from the financial institutions.

I have been working in Europe the last year and this has helped
broaden my rather narrow North American perspective. I now
realize it was Europe who started the WEB, whereas North America
can only take credit for E-mail and ARPAnet (the original U.S.
Department of Defense "Internet").

Phase One: E-mail and Internet has happened. Phase Two: the WEB
has happened. We are now on to Phase Three: beyond the WEB.
Where will this lead? I have some ideas, but my "New Years'
Predictions" tend to be about as valid as my New Years'
Resolutions.

Let me go out on a limb and predict that in Phase Three you will
be hearing a lot about ExtraNets which are sort of a "private
club intranet." Banking is an obvious sector to be heavily
involved in ExtraNet use.

Prediction two: Europe is ahead in smart cards by at least a
year. 1997 will see North America get caught up, but Asia will be
where smart cards will be used for banking and other uses. I just
came from Hong Kong where no less than three major studies
are underway.

Oh well.. Why stop at two predictions? My third is that Europe
and Asia will get caught up on the Internet. The Internet is
looked upon as a North American, English-language technology.
This partly explains why Europe (well parts of Europe) are a year
year behind North America on Internet implementation.

So much for my first (and more than likely my last) set of
predictions. Unpredictable events and people always make
nonsense of our "logical" ideas! One thing is certain. It will
be an interesting year in Electronic Commerce and Banking.

Seasons Greetings !


=======================
NOTICES
=======================

Call for Papers: Financial Cryptography '97
February 24-28 1997, Anguilla, BWI

Financial Cryptography '97 (FC97) is a new conference on the
security of digital financial transactions. The first meeting
will be held on the island of Anguilla in the British West Indies
on February 24-28, 1997. FC97 aims to bring together persons
involved in both the financial and data security fields to foster
cooperation and exchange of ideas.

For more information see URL
http://www.cwi.nl/conferences/FC97/call.html

*******

PROSPECTUS:
Multi-Client Research Study of Web Transaction Processing

A special proprietary study based on nth random sampling of a
30,000 site base will focus on sites that have mastered skills
and techniques required for successful, engaging Web commerce.
Evaluating mature websites in important product / service
categories will reveal the critical success factors that are
creating the Online future.

Very large sample sizes, combined with random website sampling
techniques will provide enhanced data on Web trends and
sufficient data to compare data by business sector.
Major Web Vendors, Trade Associations and Software and Service
Providers will find this summary of best practices useful in
planning and designing Major Web Vendors, Trade Associations and
Software and Service Providers will find this summary of best
practices useful in planning and designing transactional systems.

For more information, contact Harold Wolhandler, Director of
Research, ActivMedia, Inc, www.activmedia.com, (603) 357-0721
[direct line] or hwolhandler@...



=======================
The Legal Report: U.S. Advisory Panel Meets on Key Management
Infrastructure
-- http://www.arraydev.com/commerce/jibc/9701-2.htm
=======================
>From Richard L. Field
Contributing Editor, JIBC Legal
Email: field@...

Richard Field is an attorney and legal consultant in Cliffside
Park, New Jersey, U.S.A. He chairs the Electronic Commerce
Payment Committee of the American Bar Association.
**************
In this month's Legal Report I reprint an excellent and
insightful meeting report by John A. Thomas, first posted on
9 Dec 1996 to the cyberia-l list. The meeting was the first of
the Technical Advisory Committee to develop a U.S. Federal
Information Processing Standard for a federal key management
infrastructure. The meeting report hints at the
growing rift between the positions of U.S. government and
industry in defining the appropriate limits of an encryption key
recovery system for storage and/or communication of messages.

The meeting came three days after a notable letter was sent by
the Business Software Alliance to U.S. Vice President Al Gore,
criticising the U.S. government's new encryption export policy.
The Alliance, a leading software industry group whose members
include IBM, Microsoft, Apple Computer, Novell, and Adobe, backed
away from its initial support of the Clinton administration's
policy. It claimed that the government backtracked between its
1 Oct 1996 announcement of the new policy and its 15 Nov 1996
Executive Order implementing further details of the policy. More
fundamentally, the Alliance no longer supports key escrow or key
recovery systems for encrypted real-time communications, but only
for stored communications and data. As you would assume, this is
a major problem for law enforcement.

President Clinton's new policy shifts administration of
cryptography exports from the U.S. State Department, under its
International Traffic in Arms Regulations and Munitions List, to
the Department of Commerce, under its Export Administration
Regulations. Normally, such a move would signal an easing of
export restrictions. However, the Executive Order imposed a
number of strict new conditions on the Department of Commerce,
including a requirement that the exporter will work to institute
satisfactory key recovery techniques as a condition to obtaining
export approval.

Under ordinary circumstances (as set out in the U.S.
Constitution), these types of changes would require the approval
of the U.S. Congress. Congress, however, permitted the Export
Administration Act to expire in 1994, and since then the
President has unilaterally extended enforcement of the Act's
provisions on an emergency basis, under authority granted by
Congress to the President under the International Emergency
Economic Powers Act.

We have not yet heard the last word on U.S. cryptography export
policy. The U.S. Congress has shown signs of rebellion against
the President's recent unilateral actions, and will likely begin
serious debate in early 1997. And a draft report by the
President's own top advisors, entitled "A Framework for Global
Economic Commerce", reportedly advocates a free market
approach that conflicts with existing Administration cryptography
policies.

Further documents from the FIPS Advisory Panel meeting are
available at <http://jya.com/fipsmeet.htm>.



==============================
Internet Stock Exchange Survey
--http://www.arraydev.com/commerce/jibc/9701-3.htm
==============================
By Alan Majer
The author is a McGill MBA graduate with an interest in
electronic commerce on the Internet. He can be reached at
networks@... or by phone in Montreal, Canada at (514)
282-7692. This document may be freely distributed as long as the
author is credited.
******************
Since the Internet IPO of the Spring Street Brewing Company
earlier this year many have become intrigued by the possibility
of issuing stock using the Internet. The relaxation of SEC
regulations and the appearance of several companies supplying
Internet IPO services holds promise for businesses hoping to
conduct an Internet IPO. Other innovators plan on pushing the
boundaries of electronic commerce on the Internet even further.
Within the next year we may see the appearance of the world's
first fully-functional Internet stock exchange, this will
be the true test of what electronic commerce on the Internet can
offer.

This survey was designed to explore the concept of Internet-based
stock exchanges by measuring investors' opinions on issues
ranging from Internet security to their willingness to use an
Internet-based stock exchange. In total the data from 42
respondents was collected, 22 respondents were MBA students while
the remaining 20 respondents were collected from the Internet.
Respondents from the Internet were recruited primarily through
newsgroups and mailing lists. Because all
respondents for this survey are self-selected the survey data
cannot be assumed to be a representative sample of either
Internet users or the investment community. All data were
collected during the month of October, 1996. ...

Conclusion

Overall, results seem to suggest a very bright future for
Internet stock exchanges. A number of advantages possessed by
Internet stock exchanges prompted many to suggest that Internet
exchanges would someday compete directly with the world's largest
conventional exchanges. However, one issue, security,
complicates this picture somewhat. Major concerns
about security, fraud, and hackers mean that the Internet
commerce is perceived as off-limits for many respondents. While
time-tested systems with a track record will satisfy some, the
security issue is likely to delay widespread use of Internet
stock exchanges for some time. Education and an explanation of
security technologies may speed the process of acceptance.
Lastly, there are a number of features people would like to see
in an Internet stock exchange. Convenience is the norm, and
respondents prefer access to a wide range of stocks (from
other exchanges), currencies, and other means of executing
trades. If the results of this survey are any indication,
Internet stock exchanges will soon fill a valuable niche in the
area of electronic commerce on the Internet.



========================
Electronic Commerce in Java
-- http://www.arraydev.com/commerce/jibc/9701-4.htm
========================
By Qusay H. Mahmoud
Email: k3is@...
The author is a graduate student in Computer Science at The
University of New Brunswick, Saint John campus, Canada.
Currently, he is working on his masters' thesis which
concentrates on the Web and Java. His most recent article,
Sockets programming in Java, was published in December's issue of
JavaWorld Magazine.
*****************
The exponential growth of the Web has offered new opportunities
for doing commerce on the Web. However, commerce on the Web has
been held hostage to security concerns. This article reviews
the Java Electronic Commerce Framework which uses a security
model based on digital signatures to enable application
programming interfaces to authenticate their caller.

The Java Electronic Commerce Framework - JCEF

As commercial use of the Internet grows, the need for a secure
mechanism for conducting commercial transactions become greater.
Java creates ways to enhance electronic commerce beyond
credit card purchasing. Java adds components to support emerging
technologies of sophisticated payment instruments such as Smart
cards, electronic cash, and electronic checks. The Java
Electronic Commerce Framework (JECF) - a secure, extensible
framework for creating financial applications on the Internet, is
Java's solution for the growing need for a secure mechanism for
conducting transactions on the internet.

...The JEFC Framework sounds like a great step forward towards
Secure Electronic Commerce and hopefully when it is released to
the public it will increase the volume of commercial
transactions on the Internet. Once the JEFC is available, all is
needed is a very high speed network to handle all the
transactions. :-)

There is so much information to be covered about The Java
Electronic Commerce Framework, and space doesn't allow all the
information to be covered in just one article, so please web to
the following URLs.

http://www.javasoft.com/products/commerce/
-- The Java Commerce Homepage
http://www.javasoft.com/products/commerce/doc.white_paper.html
-- The Java Electronic Commerce Framework
http://www.javasoft.com/doc/Overviews/java/java-overview-1.html
-- The Java Language - An Overview



===========================
How Do We Protect the Civilian Infrastructure?
-- http://www.arraydev.com/commerce/jibc/9701-5.htm
========================
By Stewart A. Baker and Paul R. Hurst
URL: www.steptoe.com
Email: sbaker@...
Steptoe & Johnson LLP
**************
Threats to the national critical infrastructure are much in the
news. Is there a cyber-terrorist currently plotting a strike on
America's power companies? Many argue that right now there is no
active information warfare threat. But others, including many
close to the Clinton Administration's thinking, argue that the
absence of a threat is a temporary thing, that the nation's
enemies will sooner or later be tempted by the "naked
vulnerabilities" of our increasingly networked infrastructure.

To remedy these vulnerabilities, President Clinton
created the Commission on Critical Infrastructure Protection
(CCIP) by Executive Order Number 13010 in July 1996. This
Commission's task is to evaluate the current physical and cyber
threats to the civilian infrastructure (e.g., power companies,
banking, telecommunications) and to develop a national security
strategy for this infrastructure by July 1997. Although the
President has yet to officially appoint the Chairman of the
Commission, Robert Thomas Marsh is the expected nominee; he and
most of the Commissioners have already begun working
towards meeting the Commission's tight deadline. ...

Conclusion
CCIP is an important step in recognizing the need to
address the vulnerabilities of the civilian infrastructure.
Importantly, CCIP is both a public and private commission
consisting of Commissioners from the government and industry. To
address these issues (and others), there must be a consensus
between government and industry whereby both the civilian
infrastructure and American businesses are adequately protected.



=============================
Untraceable Payments, Extortion, and Other Bad Things
-- http://www.arraydev.com/commerce/jibc/9701-7.htm
========================
By Tim May
W.A.S.T.E.: Corralitos, CA
Email: tcmay@...
*************
I've noticed a few references in the press, and maybe on this
list, to the idea that because some bad things may be done with
untraceable payments (true Chaumian digicash, not the watered
down version offering only one-sided untraceability), that
governments will "not allow" such untraceable payments.

This won't work. So long as there is at least *one* such service,
anywhere in the world....

(See the Web article for details of the "criminal" activity Tim
has in mind.)

...So, even if "Mark Twain Bank" and "Bank of America," and,
indeed, the rest of the U.S. banking establishment eschews
untraceability, the presence of such services anywhere in the
world is enough to make the act described workable. And that
"anywhere in the world" can, as I mentioned earlier,
encompass the various underground banking systems already widely
in use (Tongs, Triads, chop marks, etc. in Asia, and presumably
similar systems elsewhere). Or it could encompass fairly
conventional banks which offer such untraceable routes for a
premium. A $5,000 commission on top of the $25,000 transfer would
make a lot of the world's banks sit up and take notice. And so
long as they were not told what the fund transfer was all
about --(The Victim) is unlikely to gain anything by telling
them--they have plausible deniability and moral comfort.

Yes, this has all been obvious for a while. (The mapping of the
scenario I describe to a specific digital cash system depends of
course on the nature of the system, on cryptographic protocols,
and so forth.)

And I surmise that the U.S. Government must have realized this.
And realized that only by _completely quashing_ all such
untraceable payments systems can the goals of stopping such "bad
uses" be met.

Unfortunately for them, and unfortunately for the victims of such
crimes, no such worldwide stoppage of all such systems seems
possible, even with draconian police state measures. There are
just too many interstices for the bits to hide. And too much
economic incentive for some persons or banks to offer such funds
transfer methods.

Fortunately for the bulk of us, the likely number of deaths and
economic losses from such crimes of kidnapping, extortion, and
even murder for hire, is still likely to be vastly lower than the
number of deaths caused by powerful central governments enriching
themselves and their cronies with foreign wars. Not to mention
the deaths in the Drug War, the lives wasted in other
interferences in private behavior, etc.

This is why I look forward to this Brave New World of fully
untraceable communications and fully untraceable economic
transactions.



==================================
Hettinga's Best of the Month
-- http://www.arraydev.com/commerce/jibc/9701-8.htm
==================================
Submitted by our Contributing Editor Bob Hettinga as his choice
of best article of month found on Internet. </i>

Robert Hettinga
Email: rah@...
*******
Hard to Tax Scenario

By Hal Finney hal@...

(Hal starts off by noting that he is commenting on a posting to
another list by Robin Hanson (hanson@...), inventor
of the Idea Futures prediction market, who suggests a scenario
and poses some questions about the potential to avoid taxes by
living in "virtual reality.")

One difficulty I find with this scenario is its science fictional
nature. It is hard for me to consider details about the life of a
doctor who works via VR. Also, if we are already in a situation
where 30% of people are avoiding taxes there will certainly have
been major changes in society, but I don't know what they will
be. This makes it hard for me to focus on the issues specific to
Ann's anonymity. However I do like Robin's choice of a concrete
and vivid example like this.

... We had some interesting posts in an earlier discussion
on this list describing the situation in Italy, where apparently
tax avoidance is raised to a higher degree than in the U.S. It
sounded like it has the approximate moral status that speeding
does here, a minor infraction which almost everyone does some if
not all of the time. In some sub-cultures no doubt the tax
avoidance rate would be even higher.

In such a society Ann may not have to care that much about
keeping her secrets, as long as she doesn't have too high a
profile at tax time.

...The other part of this scenario, where Ann interacts with her
co-workers via fake faces, does seem disturbing. I could
imagine, though, that this might be common in such a culture.
Maybe everyone pretties themselves up when on the videophone. If
there is widespread understanding that most faces are at least
somewhat false, then perhaps going all the way to a completely
faked up face would seem more acceptable. But to someone
from my generation it will be hard to accept.



================================
The Impact of IETF's EDI over Internet
Recommendations on World-wide Electronic Commerce
-- http://www.arraydev.com/commerce/jibc/9701-9.htm
==================================
By Rik Drummond
Chair, IETF "Internet EDI over Internet" Workgroup
Email: drummond@...
***************
Where is Electronic Commerce? The press has hyped electronic
commerce ever since the WEB took off three years ago. An IETF
"Internet EDI over Internet" Workgroup (IETF EDIINT WG), with
over 400 national and international members, is addressing how to
transmit EDI documents, between businesses, in a secure and
reliable manner. Our objective is: Secure, International,
Inter-operable EDI over Internet -- Now!

... Conclusion

The IETF EDIINT Workgroup is recommending the technical standards
to facilitate interoperable, secure, world-wide, EDI.

CommerceNet is sponsoring a test of these recommendations by over
10 vendors. Finally we all wait on various governments to allow
encrypted data to across their boarders in a uniform manner so
that world-wide, secure electronic commerce will be realized.



====================================
Advice on Electronic Commerce Programs for Small to Medium-sized
Enterprises
-- http://www.arraydev.com/commerce/jibc/9701-10.htm
==================================
>From Contributing Editor Mary-Anne Goldsworthy
Email: cec@...
URL: http://www-mugc.cc.monash.edu.au/cec/index.html

Mary-Anne Goldsworthy is Executive Officer of the Centre for
Electronic Commerce at Monash University, Gippsland Campus,
Churchill, VIC 3842.
*************
The CEC is a national independent consulting, training and
research centre for electronic commerce services to assist
industry and government, and specifically SMEs (small to medium
enterprises). The CEC was commissioned by the Australian
Department of Industry, Science and Tourism (DIST)
to conduct a consultancy to examine and provide advice on
electronic commerce programs for small to medium sized
enterprises (SMEs).

Small and medium enterprises (SMEs) play a major role in the
Australian economy, making up 96% of all enterprises in the
private non-agricultural sector and account for more than 56% of
private sector employment. As a whole they currently contribute
most of the private sector employment growth in Australia.

This report combines a summary of recent extensive research
already performed by a number of organisations in the last 12
months, together with interviews held with major SME
representative bodies, to present an up-to-date picture of SME
involvement in Electronic Commerce in Australia. It examines key
elements, impediments and initiatives underway, general trends
and future scenarios of electronic commerce for SMEs, and
extracts essential themes.

...Recommended Strategies

Strategies for encouraging SMEs to embrace electronic commerce
technologies for their business activities in a co-ordinated way,
should include:
* selection of suitable communication channels to address the
need for information, education and training;
* provision of incentive to be involved (business need);
* a focus on ease of implementation and demystification of the
technology;
* leadership roles assumed by both government and private
sectors.

EC Programs designed for SMEs should recognise the following:
* difference in size and motivation of SME (SME category);
* difference in electronic commerce technologies and business;
application of those technologies;
* the significance of SME business
networking;
* need for flexibility of training delivery;
* need for cooperative arrangements between government and
private sector centres of expertise.

...
CONCLUSION

There is a great deal of enthusiasm in the private sector amongst
industry associations and others to be involved in any programs
that Government may initiate to stimulate the implementation of
electronic commerce technologies for the benefit of SMEs in
Australia.

Using the Internet for electronic commerce will perhaps have the
greatest impact for SMEs because of its low cost, universal
access on a global basis and the fact that it is based on non
proprietary standards.

The time is now ripe for the exploitation of electronic commerce
for SMEs, particularly following the selection of the strategic
partner for the Commonwealth Electronic Commerce Service (CECS).

In the first instance SMEs need to be introduced to electronic
commerce with simple Email and access to the WWW for business
information and the marketing of their goods and services,
supported with appropriate education and training.

Other forms of electronic commerce (including EDI) could be
implemented over the Internet according to the justified business
needs of both the Government and private sectors.



===========================================
Over the Water -- The View from the UK
-- http://www.arraydev.com/commerce/jibc/9701-12.htm
==================================
By David G.W. Birch
Director, Hyperion
Email: daveb@...
URL: http://www.hyperion.co.uk">http://www.hyperion.co.uk
*********
COLUMN FIVE: BYE, BYE BANKNOTES

Banknotes and coins may vanish sooner than you think.

While the potential impact of electronic cash (ecash)
technologies on the retail banking sector is significant, its
worth taking the time to think about the impact of ecash on
central banks which may be even more important in the longer
term.

The Bank of International Settlements (BIS), based in Basle, has
recently published two very interesting reports. Both of these
reports take ecash very seriously and work on the assumption that
it is coming out of R&D laboratories and into the mass
market very quickly.

The first report, The Security of Electronic Money, is good news
for the ecash world as it concludes, broadly, that the security
of electronic purse schemes is adequate to meet the concerns of
central banks. A Task Force on the security of electronic money
was established in October 1995 after a workshop involving the
G10 central banks to provide a preliminary assessment of the
technical aspects of electronic purse products: stored
value products such as Mondex as opposed to value access
products such as the familiar credit card. The report looks at
the risks posed by both deliberate criminal activity and by
errors or malfunctions. In both cases, the Task Force found that
the security measures associated with the electronic money are
better than traditional forms of retail payment.

They also deal with a common criticism of ecash schemes that they
will somehow increase money laundering by observing that the
movement and management of anything other than very small amounts
of ecash will require some degree of involvement or collusion by
a financial institution: in other words, it's business as usual.

The second BIS report, The Impact of Electronic Money on Central
Banks, again looks at the emergence of mass market stored value
electronic purse schemes. It considers the various factors that
might influence the evolution of ecash and considers what these
mean for the central banks of the G10 countries. Interestingly,
the report notes that the impending demise of (at least some of
the) national currencies in the European Union (EU) might be a
significant stimulus to the development of ecash schemes aimed at
consumers because of the cost and inconvenience associated with
replacing all of the notes and coins in circulation.

...E-cash has ceased to be a fringe technological innovation and
now deserves serious consideration at every level. Whatever
people might feel about notes and coins, the fact remains that
they are costly and inefficient: it is the fact that ecash is
cheaper to store and transmit than specie that means it will
replace it sooner than many people imagine.



=============================
The Bundesbank and Electronic Cash
-- http://www.arraydev.com/commerce/jibc/9701-13.htm
=============================
By Christopher Kuner
Attorney-at-Law, Gleiss Lutz Hootz Hirsch & Partners, Frankfurt,
Germany
URL: http://ourworld.compuserve.com/homepages/ckuner
Email: ckuner@...

Christopher Kuner is a US attorney-at-law with the German
corporate law firm Gleiss Lutz Hootz Hirsch & Partners in
Frankfurt. He is a frequent author and lecturer in Germany and
abroad on legal aspects of the Internet, and practices in the
areas of electronic banking, cryptography, Internet
regulation, and telecommunications law.
*********
The German banking establishment is starting to pay increasing
attention to the legal and regulatory problems posed by Internet
payment mechanisms such as "electronic cash." Up to now, interest
in the subject in Germany has been more theoretical than
practical, owing to the cash-based nature of the German financial
structure, the halting acceptance of Internet commerce among the
German business community, and the German public's scepticism
toward new types of payment schemes.

On November 28, 1996, Bundesbank director Edgar Meister delivered
a speech in Frankfurt which provides the Bundesbank's most
detailed and authoritative statement yet on electronic cash and
Internet payment issues (an English translation of the speech is
available on the Internet at
http://ourworld.compuserve.com/homepages/ckuner Meister's
comments demonstrate the cautious attitude taken by the
Bundesbank in this area.

...The Bundesbank is concerned that increased use of such schemes
could cause it to lose control over traditional techniques for
influencing the German economy, and might call for measures such
as incorporating electronic money into minimum reserve
requirements or, as a last resort, the monopolization of their
issuance by the Bundesbank. Meister also expresses concern about
the issues of security, liability, and money laundering, and
indicates that an upcoming amendment to the German banking
law will result in the issuance of what he calls "card money"
(e.g. prepaid cards) and "net money" (e.g. digital cash) being
limited to banks. Finally, Meister expresses some
scepticism about the extent to which such electronic payment
methods are likely to find acceptance among the public as
substitutes for cash.

The warnings contained in Meister's speech demonstrate the
Bundesbank's traditional caution in this area, but raise
questions about the effectiveness of the restrictions which
Meister discusses. For example, given that there is no effective
way for national governments to control message flows on the
Internet, it is not clear how restricting the issuance
of electronic cash in Germany to chartered banks could be
enforced; indeed, attempts at such enforcement on an
international scale would likely lead only to insoluble
jurisdictional conflicts.

Much of Meister's confidence in the
government's ability to enforce financial regulation on the
Internet is also based on a belief that "net money" will
inevitably be converted back into traditional national
currencies, which may or may not be true, depending on how
quickly and extensively such electronic payment mechanisms are
accepted. And while Meister's statements regarding minimum
reserve requirements and the monopolization of electronic cash by
the German government may only have been hypothetical cases which
will likely never come to pass, the fact that he mentioned them
at all has understandably unsettled a number of financial
institutions potentially interested in offering such payment
systems in Germany.



===========================
Critique on the 1994 EU Report on Prepaid Cards
-- http://www.arraydev.com/commerce/jibc/9701-16.htm
=============================
By Ian Grigg
November-December 1996.
Email: iang@...

Contributing Editor Robert Hettinga asked Mr. Grigg for a
brief summary of his critique of the 1994 EU report on Prepaid
Cards. Ian took this as a sign that the critique needed an
abstract, which he submitted as follows. The entire critique is
at http://www.systemics.com/docs/papers/1994_critique.html
************
Abstract: The European Union report of 1994 reserves the issuance
of Prepaid Cards to banks. Comments have indicated that the
conclusions of this report should be expanded to include Internet
cash, and it is believed that a committee under the auspices of
the EMI has been given that mission.

This approach would be valid if the conclusions in the 1994
report were valid, and there was sufficient relationship between
the prepaid card and Internet cash to support this extension. It
is argued that neither is the case, and thus there is little
validity in simply extending the 1994 report. Rather, a fresh
approach is called for with respect to Internet cash.

With due consideration given to the pressures upon the
institution of central banking, it is argued that only a policy
of minimal regulation is likely to be structurally practical.
Thus the imperative is on establishing a dialogue with the new
financial intermediaries, and encouraging the development of
simple, open and transparent structures suitable for public
monitoring.

In the event of attempts to stifle financial innovation for the
sake of control, authorities will be ignoring the changing face
of the intermediation industries, and rightly or wrongly, are
likely to build a structure at odds with the future. It is argued
that, whilst there is little chance of this structure surviving
in the long term, its construction and downfall is likely to have
negative effects in the medium term for Europe and European
industry.

==============================
End of JIBC part 1