Internet Legal Tender

Consider this: "We may be in a situation analogous to the 1860s....Now, we see that some institutions are interested in printing their own versions of electronic money and following their own rules." Was this spoken last week? No, its from 1994.

This is a quote from an article from the 1990s, “Coins, Notes, and Bits: The Case for Legal Tender on the Internet,” which argues that the only way to prevent a bunch of digital currencies with different values is for the Federal Reserve to issue its own e-cash. This e-cash would be legal tender, equivalent to banknotes, and set an e-cash standard for all digital currencies.

This proto-CBDC followed what we would call a kind of wholesale or two-tiered model today. The Federal Reserve would mint tokens when private banks purchased them from the Fed. Private individuals and businesses would withdrawal these tokens from their bank accounts and store them on their personal computers.

An online transaction between a buyer and seller would involve the buyer sending their tokens to the seller. The seller would automatically forward them to the Fed, which would authenticate them, destroy them, and send new ones to the seller. This would provide anonymity to the buyer and prevent double spending.

In the era before private cryptography was fully legal, this was an ingenious solution.