Fighting Inflation by Making Cheaper Coins

[craigr]

Not totally related to gold, but tangentially so:

Will Nickel-Free Nickel Make a Dime’s Worth of Difference?

As the White House looks to cut costs across government, "making coins from more cost-effective materials could save more than $100 million a year, which isn't just pocket change," says Dan Tangherlini, the Treasury Department's chief financial officer.

Wow. A bad joke is the best the PR flaks at Treasury could come up with.

Still, industrial porcelain, embedded with an identification chip, is seen as an outside possibility. A more likely candidate: an aluminum alloy, used by other countries for coins. But any switch is likely to be controversial.

The aluminum alloy part is concerning enough, but not nearly as bad as an RFID chip inside the money. I analyzed RFID applications and vulnerabilities in the past as an information security researcher. My feeling afterwards is that there would be a big push for RFID in all money to remove the ability to have anonymity in cash transactions. It would first be put out into the public as an "anti-counterfeiting" measure. From there it could be stepped up easily to require banks to scan all money to check for "counterfeits."

Banks could then refuse to accept money that couldn't be RFID scanned as a risk control measure. This would then force stores to want to RFID scan money given to them so they are not left holding the bag. Finally, having money dispensed from banks and ATMs linked to the person who took the money out could be done. Why? Well, nobody would want to have non-RFID money because it could be counterfeit and the stores wouldn't take it. Once this is done the circle of tracking the cash can be closed completely.

What then? No anonymous cash transactions could be accomplished. Links between cash could be made between people. Bills could be tracked from the bank to the ATM to the pocket of a person to a store and back to the bank. All RFID checked along the way. Every purchase could be tracked and, if necessary, a few quick keystrokes could disable the money in someone's pocket by marking the RFID identifier as invalid in a central database.

Not plausible? No, it's completely plausible.

The point of the metal in the coins is that it is a commodity value just as gold and silver are. The reason the nickel and penny are worth less is because the dollar is worth less. The markets are not fooled by this kind of rhetoric of saving money. As for RFID in the money? Yikes. I don't want to consider the implications.

[MediumTex]

A friend of mine was telling me about working in Moscow about 10 years ago after the US $100 bill was changed and how it was suddenly impossible to get rid of the old style bills.  He said he was explaining to a cab driver that there was nothing wrong with the old bills.  The cabdriver looked at him like he was an idiot and said "oh yeah, well if there was nothing wrong with them then why did they stop making them?"

It's amazing how quickly sentiment about something like money can change.

Looked at how eager people were after 9/11 to give the government any power it wanted.

The scary thing isn't that craig's scenario is plausible (it's certainly that)--the scary thing is people would eagerly embrace it if it were packaged properly.

I highly encourage anyone who is interested to read Nixon's speech announcing the sudden closure of the gold window.  He said he was doing it to stop currency speculators from undermining the U.S. economy.  His stated strategy was to close the gold window on a temporary basis, along with a series of price control measures to strengthen the U.S. economy.  It's an entertaining read.