Where's the smart money?

[R. A. Hettinga]

http://www.economist.com/printedition/displayStory.cfm?Story_ID=975746&CFID=301055&CFTOKEN=47471685


Where's the smart money?

Feb 7th 2002
>From The Economist print edition


Money of the future may almost literally talk


AMERICAN banknotes bear the motto "In God we trust". A humorous extension
to this phrase-ascribed, unofficially, to the National Security Agency-is
"All Others, we monitor". That joke, though, may soon pale into reality,
for such a phrase might well be a suitable slogan for the cash of the
future.

Radio-frequency identification tags (RFIDs) are widgets that are used all
over the world for granting access to secure areas. They are also used to
track anything from books to pallets to cattle to Prada handbags. Their
advantage is that each tag (and therefore each object) can be identified
uniquely. That makes them different from, say, bar codes, which merely
identify classes of object. Also unlike bar codes, RFIDS can be read
remotely without having to be in the line of sight of the reader. In recent
years, their manufacturers have been drooling over the possibility of
tagging banknotes. The advantages envisaged are a combination of
authentication, anti-counterfeiting and tracking.


In the money

The guts of a typical RFID tag are a microchip and an antenna (often a coil
of wire). These may be sandwiched inside an encapsulating plastic. There is
no battery. When a tag is "interrogated" by a reading machine operating at
the right radio frequency, the antenna picks up a small amount of
electromagnetic energy that it uses to power the chip. The tag then
broadcasts data in the chip back to the reader.

A new generation of RFID tags produced by companies such as Texas
Instruments in America, Hitachi in Japan and Infineon Technologies in
Germany, has broken through barriers of size (less than 1mm across and
1Ž2mm thick), cost, flexibility and durability, to a point where such tags
can be embedded inside sheets of paper, such as banknotes.

The distance from which tagged banknotes could be read would depend on the
exact specifications of the chips that were used. It would probably be
somewhere between 10cm and a metre. One form of the technology can read 30
notes a second, although the tags have to be separated from each other by a
distance of at least 2cm to reduce interference. Initially, therefore,
bundles of notes could not be read; but notes being issued from cash
machines, or passing from customers to tills, could.

The technology remains relatively expensive (20-30 cents a chip), and there
is still work to be done hammering out what people want in the way of
security standards, durability and the amount of information that can be
stored. But Infineon says that these problems could be ironed out within 30
months, and possibly much faster than that. Critics sound a warning,
however, that long delays are likely in reaching an international agreement
on a cryptographic security standard.

One bank, at least, seems interested in the idea. Late last year,
Electronic Engineering Times reported that the European Central Bank (ECB)
was working with "technology partners" to embed the tags into euro notes by
2005-as a means of foiling counterfeiters. The ECB will only say of the
project, "we don't want to talk about this." Nevertheless, two chip
manufacturers, Philips and Infineon, admit to having signed confidentiality
agreements with some firms in the industry. Hitachi says it has been
discussing the issue with European banknote makers.

Obviously, such tags would make counterfeiters' lives far more difficult.
But according to De La Rue, a British firm that is one of the world's
leading "security" printers and paper makers, the ECB is already aware of
many new anti-counterfeiting technologies that would be just as robust as,
and less expensive than, RFID. If this is the case, the additional benefits
of RFID banknotes-such as the greater ease with which cash could be
tracked-are the likeliest explanation for why the technology is now
attracting serious consideration.

RFID-tagged notes mean that it would be possible to gather "real-time"
inventories of notes within banks. And, if cash registers were equipped
with authorised readers (tags can also interrogate reading machines to
establish a reader's "authority" to ask particular questions), details of
the transaction and the notes involved could be collated in a central
database.

Accurate knowledge, and monitoring, of the population of banknotes could be
a powerful tool. The mining of data on how different banknotes move through
the economy would make it easy to spot suspicious transactions-for example,
a large deposit of notes that had been out of circulation for a long time.

There are further possibilities. Known notes could be slipped into the
"informal" economy by law-enforcement agencies that wanted to find out
where they turned up. Kidnappers could no longer insist on unmarked bills,
for there would be no such things. Even the theft of cash would become a
much trickier affair.

Clearly, the technology would have huge privacy implications. On the one
hand, customers of illicit and semi-licit goods and services, such as
recreational drugs and prostitution, would risk losing their anonymity
unless they were careful. On the other, ham-fisted policing might implicate
the innocent in transactions to which they had not been a party, merely
because they once handled suspect notes.

Nevertheless, it is likely that the threat of terrorism and organised
crime, and the precedent of existing methods for tracking money, will be
strong counter-arguments in favour of tracking technology. The relatively
high cost of the tags has led to speculation that they would be practical
only in high-value notes-in the case of the ECB, euro200 and euro500. But
it is just such notes that are of concern to agencies such as Britain's
National Criminal Intelligence Service, which warns that these new
denominations make it easier to move large amounts of currency discreetly
(and possibly illegally) around the world. The global reach of the euro, a
currency that is policed by a fragmented group of authorities, highlights
weaknesses that RFID technology may be well-placed to rectify. For
criminals, money may no longer talk. Instead, it may squeal.


-- 
-----------------
R. A. Hettinga <mailto: rah at ibuc.com>
The Internet Bearer Underwriting Corporation <http://www.ibuc.com/>
44 Farquhar Street, Boston, MA 02131 USA
"... however it may deserve respect for its usefulness and antiquity,
[predicting the end of the world] has not been found agreeable to
experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'

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