Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: THURSDAY, October 12, 1995                   TAG: 9510120040
SECTION: BUSINESS                    PAGE: B-8   EDITION: METRO 
SOURCE: Associated Press
DATELINE: WASHINGTON                                LENGTH: Medium

CASH CHIP MAY ALTER THE SOUND OF POCKET CHANGE

That frustrating search of pocket or purse for quarters for the parking meter could be only a memory if a new form of electronic money - now in its infancy - becomes popular.

A House Banking subcommittee heard from government witnesses Wednesday who said the latest wrinkle in ``smart money cards'' could be the next step toward a cashless society. But they also warned of new opportunities for fraud and tax evasion.

At issue is the developing technology that allows cash to be stored on wallet-sized plastic cards equipped with a computer chip capable of holding far more information than the magnetic strips now on credit and debit cards.

The new cards could store small amounts of money as a substitute for pocket change. The balance would be depleted as consumers used them at stores, vending machines, parking meters and subway turnstiles.

Stanley Morris, head of the Treasury Department's Financial Crimes Enforcement Network, told the House panel that the new technology poses a risk if the smart cards eventually are used for big transactions or to store large amounts of money.

``A large amount of currency, like an elephant, is difficult to hide,'' he said. ``The new payment systems have the potential to change all this. If cards can be loaded with value, not just from banks but from retail outlets or other sources, current systems for tracking funds could lose their value.

``The possibility of virtually untraceable financial dealings would create perhaps unparalleled problems for law enforcement,'' he said.

But Morris said he is reluctant to offer any legislative or regulatory proposals at this early stage that could stifle development of a system likely to stimulate commerce, benefit consumers and make trade less expensive.

Federal Reserve Vice Chairman Alan Blinder said the government could lose revenue if electronic cash replaces a significant portion of the $400 billion in U.S. currency in circulation worldwide. That's because holders of the currency, in effect, are lending to the government interest-free.

Economists call this ``seigniorage'' - the income a country receives from having its currency accepted in exchange for goods and services. Holders of dollars overseas are accepting currency that represents a future claim on U.S. assets without collecting interest in the interim.

Blinder said the Federal Reserve turned over about $20 billion in earnings to the Treasury last year, most of it from seignorage.