"Export jobs, not crypto"
композитная кровля
By Josh Mchugh
C2NET'S SAMEER PAREKH isn't the only one thumbing his nose at the U.S. Commerce Department's export regulations.
Sun Microsystems recently announced that Elvis, a Russian company headquartered in a Moscow suburb, had released a security package armed with 128-bit encryption, vastly stronger than the feeble 40-bit ceiling permissible on unrestricted exports by U.S. software firms. It's no accident that the Elvis software works perfectly with Sun's network equipment and software: Sun owns a stake in Elvis, and the Russian company's engineers designed the software to work with Sun's operating system. Looks like yet another case of national borders proving to be a small barrier to technology.
By Josh McHugh
IN A BUREAU OF ENGRAVING & PRINTING building just across the Potomac's Washington Channel from the Jefferson Memorial, printing presses the size of moving vans grind out sheets of dollar bills. Ink-spattered workers tend the machinery with screwdrivers and oilcans.
That operation, along with the green paper it produces, may soon fall
victim to the computer age. If so, the federal government will lose a
lucrative source of revenue. "The Federal Reserve is the most profitable
business there is," says Walter Wriston, former Citibank chairman.
"They don't have to pay for their inventory."
Here's why: As long as the public holds paper money, it is, in effect, giving
the federal government an interest-free loan. The dollars are simply a
non-interest-bearing IOU issued by the Federal Reserve.
For most of recorded history monarchs and central banks have considered it their divine right to control the money supply. When they succeed in doing so, they can finance their operations in part by skimming some of the money. "Seigniorage" is what the economists call the process. In the old days seigniorage took the form of coin clipping—the royal mint would issue a sovereign with less than a sovereign's worth of gold in it. Nowadays seigniorage takes place when the government issues bills that erode with inflation.
In a digital world cybermoney becomes an ever-greater threat to the government's monopoly over dollar issuance.
Over the last three decades it has become easier to move and hold money in noncash forms. American Express first stole away some of the government's float by persuading tourists to replace paper money with travelers' checks. Later, instead of holding a no-interest checking account at a bank, which in turn holds a no-interest account at a Federal Reserve bank, you could own shares in a money market fund and use those shares like money.
Credit cards, too, cut down on the need to carry paper money.
Frequent-flier miles could be next. If the airlines made these mileage accounts freely transferable, they would turn into a dollar alternative that would hold their value much better than a greenback.
Next in the evolution of the dollar competitors: digital cash, exchanged over the Internet and stored on disk drives or microchip-enhanced smart cards. In principle the technology gives anyone with a server, a network connection and a command of cryptographic protocols the ability to mint money. Your unit of account doesn't have to be non-interest-bearing dollars; it could be a claim on a pile of interest-bearing Treasury bills or shares in the Magellan Fund.
The Internet's global reach solves the acceptance problems that private currencies used to encounter in the 19th-century days of free banking. And the Web is the perfect place to post a rating newsletter that could tell potential users whose currency is the most trustworthy or widely accepted.
Robert Hettinga, who runs the Boston Digital Commerce Society, predicts that digital cash will first gain currency as a medium for small on-line transactions, such as payments for downloading inexpensive software. Once people gain confidence in the banks that issue digital money and the software that moves it, they will trust them with larger sums.
Among the companies working on digital cash systems: Citicorp, Microsoft, Digital Equipment Corp. and Nomura. The systems all have one thing in common: The U.S. Treasury gets cut out of the float.
Could the federal government attempt to regulate or tax competing money systems away? The issuers could simply relocate to Zurich or Singapore.
Going offshore on the Internet
By Josh McHugh
IF YOU HAVE A MODEM, an Internet account and encryption software, you can start a Web business based in a Caribbean tax haven. Just get in touch with Offshore Information Services Ltd. (www.offshore.com.ai), an Anguillan company started in 1994 by Vincent Cate. Cate, 33, is a U.S. expatriate with degrees in computer science from Berkeley and Carnegie Mellon.
Send him your name, phone number, E-mail address and a proposed Web address for your business. Cate sets up the Web site and arranges for an Anguillan lawyer to check your references and register your corporation. As long as the background checks don't reveal you to be a fraud, a felon or a "spammer" (a purveyor of junk E-mail), you'll be in business. Cate claims to have set up a dozen on-line businesses this way.
Cate will send you forms to open a corporate account with an Anguillan branch of Barclay's or Scotia Bank, or with the National Bank of Anguilla. You can pay his $1,500 fee by check, credit card, electronic wire transfer or a digital currency like CyberCash or—if you want the transaction to be untraceable—Digicash Inc.'s Ecash. To get Ecash, you can open an account with Mark Twain Bancshares over the Internet (www. marktwain.com). Mark Twain, acquired in April by Mercantile Bancorp, is the only U.S. bank issuing Ecash, but Deutsche Bank, Australia's Advance Bank and Norway's Den Norske Bank issue it as well.
Why would you want to start an offshore Web business? Perhaps to hawk a stock-tip letter, microchip designs or saucy limericks. You can accept credit card payments over the Internet.
Cate's server, running your Web page, is equipped with software by C2Net (see story) that encrypts the payment sessions.
Anguilla doesn't levy any tax on ventures like this one. Neither does it cooperate with the Internal Revenue Service in tracking down U.S. tax dodgers. But don't try dealing drugs. Anguilla does occasionally team up with the Drug Enforcement Administration.
What do you do with your revenue? The money, from charge card credits, will be deposited in the Anguillan account of your corporation. You can spend the money by drawing on it with a corporate credit card or debit card. That means you could make cash withdrawals without visiting Anguilla; just use the debit card at a U.S. automatic teller machine.
Is this activity legal? Yes, if you tell the IRS about it and pay tax on your take. On Schedule B of your 1040, you have to fess up to owning an offshore bank account. Leave off the information and you have committed a felony.
An IRS spokesman says the agency has no special programs to address the tax-collection difficulties posed by encryption and Internet access to offshore business. Maybe the agency should look into it.