Despite a growing pushback against the effort, the rush among international bankers to do away with high-valued currency denominations, the next step in their goal of a cashless society, continues apace.
Having dismissed the concerns of privacy advocates and the like by linking the elimination of paper money to the global war on terrorism, the focus seems to be on arguing how simple the process would be, in an era of ubiquitous credit cards and digitally-linked bank accounts, and how little downside there would be.
To understand the weakness of the existing digital banking system, however, one need only look at the grand-daddy of all big international banks, the Federal Reserve Bank of New York, to see massive problems underlying the system.
February 5, the first Friday of the month, saw the Federal Reserve Bank, and more precisely its customer, the central bank of Bangladesh, ripped off to the tune of $81 million. No one knows who took it, or where the money ended up, and nearly two months later, everyone is engaging in finger pointing.
So what happened? In short, digital banking happened, as hackers put in numerous requests to the Federal Reserve, trying to get them to transfer roughly $1 billion out of Bangladesh’s account, in a flurry of Friday requests. Why Friday? Because Bangladesh is a majority Muslim nation, Friday marks the beginning of their weekend, so any automated notices they received went unread until the first weekday, Sunday. But Sunday is a weekend in New York, so the two banks couldn’t really discuss the theft until Monday, and by then, the money was long gone.
Of the $1 billion in requests, only $81 million went through by then, with another $20 or so million stopped by Deutsche Bank, which noticed an obvious spelling error in one of the requests, and halted it. The rest of the money went through, hit casino accounts in the Philippines, and just disappeared.
Bangladesh is asking the Philippines to look into the matter, but casino regulation in the country is such that the thieves could easily have deposited $81 million with a casino, took it out in chips, cashed the chips in, and made the money totally untraceable. They wouldn’t necessarily have even needed to convert the money into physical cash, once it disappeared onto the casino floor it was as laundered as possible.
The Federal Reserve, for its part, insists the thieves used perfectly legal transfer requests, and that they did nothing wrong. Individual victims of identity theft and credit card scams may find this excuse extremely familiar.
Bangladesh is a large nation though, and despite its abject poverty, a fairly large customer of the Federal Reserve Bank, and when you’re talking about tens of millions of dollars, it is no surprise they are planning to sue the New York bank to get their money back.
The legal underpinnings of such a lawsuit are unclear, given the relative newness of digital banking, but several experts have said they believe Bangladesh has a decent case, on the notion that a large depositor at a huge global bank should have a reasonable expectation of some level of security in that deposit.
The expectation of such security though, appears wholly unfounded, as the Federal Reserve was only too happy to throw a central bank’s money into the account of a random casino, and allow it to disappear into the aether, subsequently washing its hands of the incident.
The promise of a cashless system allowing easy paper trails for governments to follow similarly didn’t pan out, allowing some insight into the first country the money ended up in, but then losing track of it almost immediately.
This banking system is clearly not secure as it is, and imposing it on the American public as a de facto monopoly would further weaken the incentives to make improvements. To trust the entire economy with it is pure folly.
I’ve already opined about the calamity of a cashless society from a moral perspective, allowing unchecked government intrusion which would mean the virtual obliteration of personal privacy, and by extension, the destruction of a truly free market.
But a cashless society with an insecure digital system is doubly cursed, both obliged to participate in a system which gravely undermines their personal liberty, and to watch with no real recourse as their wealth is siphoned off by thieves.
After all, a big central bank like Bangladesh can throw a few million dollars at lawyers to get the Federal Reserve to reimburse them for shoddy security. The number of individuals who could afford that level of legal access is small indeed, and the number who could afford it after being robbed even smaller.
Jason Ditz is news editor at Antiwar.com, a nonprofit organization dedicated to the cause of non-interventionism. His work has appeared in Forbes, Toronto Star, Minneapolis Star-Tribune, Providence Journal, Washington Times and Detroit Free Press.