cfo.com

Print this article | Return to Article | Return to CFO.com

Where's the Smart Money?

Money of the future may almost literally talk.
Economist Staff, The Economist
February 8, 2002

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 1 mm across and 1/2 mm 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.

Copyright © 2002 The Economist Newspaper and The Economist Group. All rights reserved.




CFO Publishing Corporation 2009. All rights reserved.