Still, if Internet banking and commercial transactions were to grow in volume and complexity, it is quite possible that private contract law could evolve into a specialized commercial law of cyberspace, and eventually be codified into parts of the UCC. On a less theoretical note, I should mention that a multi-national Task Force on the Security of Electronic Money, established by the Committee on Payment and Settlement Systems and the Group of Computer Experts of the Group of Ten Central Bank Governors, and chaired by Israel Sendrovic of the Federal Reserve Bank of New York, issued a report on its findings entitled “Security of Electronic Money” in August 1996. This Task Force examined primarily consumer-oriented stored-value payment products by, among other activities, surveying the leading global suppliers of both card-based and software-based stored-value systems, and concluded that the technical security measures of these systems are being designed to achieve an adequate level of security relative to other forms of common retail payment, assuming they are implemented appropriately. I recommend the report to anyone interested in a general discussion about security issues and stored-value systems, Internet-based or not. Moving away from consumer banking and the Internet, and looking perhaps not-so-distantly into the future, I have also had occasion to question what the repercussions are for large-value payments transfer systems, such as Fedwire, with the emergence of a different, much more secure Internet. Generally speaking, the Internet today is a “somewhat” secure environment in which to conduct banking and financial service activity.
The key questions here are related to amount and velocity -- that is, (1) how would digital bills or notes, or digital coins, be represented on the books of a bank or depository institution; and (2) how many times would this electronic coin or bill circulate in the general economy without somehow being processed and recorded by a bank? In this regard, the October 1996 Bank for International Settlements report “Implications for Central Banks of the Development of Electronic Money” states “E-money could lead to shifts in the velocity of money which might temporarily reduce the usefulness of the monetary aggregates, especially narrower ones, for countries that rely on them as targets or indicators.” In a June 1996 speech before a cyber-payments conference, Governor Edward Kelley of the Board of Governors stated that, with respect to a bank’s liabilities incurred through issuing stored-value cards, such liabilities should be included in the statistical reports that banks must currently submit to the Board of Governors.3 It is difficult to argue that bank liabilities resulting from the issuance of electronic “coins” or electronic “bills and notes” should be reported any differently. A more problematic question arises when considering the matter of nonbank issuance of electronic coins or bills. Currently, the largest nonbank issuers of travelers checks are not required, but do volunteer to the Fed, the outstanding balances of their travelers checks, so that this information can be statistically recorded and reported in United States monetary aggregates by the Fed.