U.S. regulators appear to be divided on how fast and how far the federal government should move in regulating new forms of electronic money on the Internet.
The officials worry that governmental actions to protect online consumers could thwart new business practices or the development of new technologies that could serve the same ends.
Among key regulatory agencies, the Federal Reserve Board counsels a slower approach. "I am especially concerned that we not attempt to impede unduly our newest innovation, electronic money, or more generally our increasingly broad electronic payments systems," Fed Chairman Alan Greenspan told a conference on electronic money and banking this week in Washington.
"Consumers and merchants, not governments, will ultimately determine what new products are successful in the marketplace," he said. "Government action can regard progress, but almost certainly cannot ensure it."
"Let us put aside our ideological views with respect to regulation and take an intensely practical approach to finding the right balance so that we can minimize impediments to growth and at the same time meet [consumer protection and law enforcement] needs," Rubin said.
The consequences of what Washington decides could accelerate or retard how much commerce is conducted over electronic networks like the Internet, affecting the evolution of the potential market for financial services and transactions.
Robert Pitofsky, chairman of the Federal Trade Commission, argued that in early stages of new technologies, like the Internet, regulators should tread carefully. "We should be cautious about regulation, but current approaches to consumer protection and antitrust [issues] are sufficiently flexible and resilient to respond to these new challenges," he said.
The FTC chief suggested that new technology might protect consumers better than laws, mentioning encryption, digital signatures, online verification, and other authentication devices.
"The technology that is opening new markets and methods of marketing also has the potential of addressing some of these concerns," Pitofsky said. "Even without added legal protections, systems could be designed to make electronic money better protected than cash."
Citing historical examples, Greenspan repeated his oft-stated view that competition and markets, not regulation, best address financial issues.
"Government regulation is an add-on that tries to identify presumed market failures and accordingly substitute official rules to fill in the gaps," said the head of the Fed, who downplayed how quickly electronic money is likely to spread. "Government's regulatory role must increasingly assure that effective risk management systems are in place in the private sector."
Both Pitofsky and Rubin endorsed a government role in making sure the benefits of using electronic money reach disadvantaged people. "Electronic money should increase, rather than decrease, access to financial services and mainstream economy for those in the inner cities or poor rural areas," Rubin said.