Don't buy the latest CD with dollars. Buy it with beenz. There are no beenz coins or bills and you cannot find them at the bank. Beenz are cybermoney, worth 200 to the dollar, and circulated exclusively on the Internet.
NEW YORK, 24 July 2000 (MaxisNet) - Beenz are one of a number of new currencies competing to become the money of choice in cyberspace. This is unregulated money, raising troubling questions about how central bankers can influence global economies and control money supply in a wired world.
"If the Federal Reserve is tracking traditional measures of monetary flow and all of a sudden they miss 3 percent of that because of e-money, then it will be impossible for them to calculate the underlying inflation rate," said Kevin Harris, currency analyst at MCM International in New York.
The Fed is keeping a watchful eye on the growth of e-money but most analysts say it is unlikely to oust credit cards as the major payment method on the Web. That scarcely concerns the new breed of cyberbankers, who thrive on throwing out rule books.
"Beenz were designed for the digital world, just as dollars were designed for the offline world," Charles Cohen, CEO and founder of beenz.com, said. "Dollars and beenz will peacefully co-exist as legitimate currencies."
More than one billion beenz are in circulation, Cohen said; the Federal Reserve says there is US$571.4 billion hard U.S. dollars floating around the globe.
Consumers earn beenz by visiting certain Web sites that give them away as a means of rewarding customer loyalty. Beenz can then be spent at a number of Web sites to buy things from Omaha steaks to movie certificates and CDs.
While it is unlikely beenz will ever topple the almighty dollar as king of all currencies, digital cash offers an alternative to consumers worried about privacy and security when purchasing goods online with a credit card. And merchants like digital cash because it does not have hefty credit card fees.
Other digital cash players include Flooz, a gift certificate bought with credit cards or money orders, cybermoola, which operates much like prepaid phone cards, and cybergold, whose members earn virtual money by visiting sponsors' Web sites.
"Right now digital cash is hot," Thomas Patterson, managing director of e-commerce transactions at KPMG Consulting in New York, said. "It is fulfilling a need because it is so difficult to get real money on the Internet now. However, it's a stopgap measure - eventually there will be easier ways to get and use real money online."
Analysts say digital cash will only chip away at credit cards' online dominance. "But they'll never overtake credit cards," said Ken Kerr, senior analyst at Gartner Group. Credit cards account for 92 percent of online transactions, he said, predicting that in three to five years that will shrink to 75 percent as alternative payment methods become more popular.
Moreover, technology is being developed in the wireless devices arena that will allow consumers to purchase goods online using money stored in their palm pilots or cell phones.
"As soon as devices like palm pilots and cellular telephones and other PDAs (personal digital assistants) become more commerce-friendly, which is definitely on the way, I think you'll see the alternate currencies become less popular," Thomas Patterson, managing director of e-commerce transactions at KPMG Consulting in New York, said.
But who will regulate this digital flow of money as e-cash gains momentum? The Federal Reserve, the leading manager of check clearing systems in the United States, would see no record of funds moving around on the Internet.
"We're talking about traffic diminishing off traditional payment networks managed by the Federal Reserve," said Gary Craft, e-finance research analyst at Deutsche Banc Alex Brown in San Francisco. "The Federal Reserve may lose control over bank reserves," Craft said.
Central bankers in other countries would face the same problem. And the emergence of e-money could have a major effect on the way they measure economic activity and calculate inflation, and thus decide on interest rate levels.
"E-money can allow systems to be set up where huge amounts of economic activity can be offset by different firms with maybe a net check being written at the end for US$10,000, which is all the Fed would see," MCM's Harris said.