Sunday, April 17, 2011

Governmental control over payments.

Cash is still king in one specific way: one can spend it where and with whoever you want to. This is different in the case of electronic currency as it is traceable and as such can be controlled. In the past, Governments have been prescriptive in some instances on how electronic money can be used. The examples of control over the flow of money are growing.
  • The big backlash after the sensitive leaks made by Wikileaks lead to most payments made to Wikileaks being blocked by payment processors on the request of governments. This meant that money held on behalf of Wikileaks by (for instance) Paypal was frozen and could not be accessed.
  • The PATRIOT act of 2001 provides for mechanisms to regulate payments that could be used to fund or benefit terrorist organisations. The implementation of the terms of this act usually have a large impact on electronic payment systems
  • The US Unlawful Internet Gambling Enforcement Act of 2006 requires payment systems to block electronic payments to listed beneficiaries. Similarly, a proposed law: Combating Online Infringement and Counterfeits Act (COICA), would also require payment processors to block transactions to sites placed on a black list.
One can find a lot of merits in utilising the payment system to enforce laws and change behaviour. As such it is a very powerful tool that can be used to great effect. But is the philosophy of blocking payment morally defensible? Should the illegal act itself not rather be punished? Is this really an effective way to police illegal behaviour, as funds will now start flowing through other (untraceable) mechanisms. How about having an approach of warning or auditing, or rather using information in support of prosecution. In my view, it would be much better to make electronic payment systems more frictionless and with less barriers.

This approach would help in the fight against cash.
(The content of this blog was triggered by the following article.)

1 comment:

Nikesh said...

I think, the control they have over electronic money is far greater than CASH, and that is the basic reason governments support electronic banking. If there were a rule that governments could not act to protect their causes by blocking funds that threaten them, I think governments would loose interest in electronic money altogether! All other incentives would seem petty to them after that!