January 10, 1996

Deutschemarks and the Digital Age

By J.D. Tuccille
ZD Net Associate Editor

I learned a valuable lesson in capital mobility when I visited my Aunt Mae in Germany about fifteen years ago. Mae wasnít really my aunt, but an old friend of my grandmother. Sheíd come to the States before the Second World War, spent the war and post-war years as a maid on New York Cityís Fifth Avenue, then returned to Germany with a nice consideration left to her by her deceased employer.

Mae kept an impressive horde of gold and silver coins in her small, antique-furnished apartment. And not just coins; there were also bank notes, bonds, and warrants -- all beautifully printed with eagles and gothic script. But the paper was worthless, issued by regimes that had ceased to exist and repudiated by their successors. Aunt Mae also kept a bank account in Holland in defiance of Germanyís currency control laws. From time to time she strolled across the border with a shopping bag full of deutschemarks which she exchanged into guilders and deposited in her illegal account.

Mae had lived long enough to see borders change, governments fall, and paper currencies turn to toilet paper. She trusted in her permanent and portable coins and her Dutch bank account. Whatever might befall one country, she trusted that the resources in the other would survive.

Mae would have loved the Internet.

Aunt Mae was an old woman when I visited. Those infrequent trips across the border into Holland must have grown increasingly difficult as time wore on. Iím sure that she would have preferred tapping at a PC keyboard while sipping a cup of tea. Forget Holland -- German armiesí on-ramp to France -- Iím sure she would have stashed her funds someplace well away from Europeís wars and tax collectors.

Itís too late for Mae, but not for those of us watching the Internet evolve daily. Already bank accounts can be established over the Web with such outfits as European Union Bank and Security First National Bank and stocks can be purchased from National Discount Brokers Online (Note: I don't know a thing about any of these businesses other than their online savvy). Itís a natural fit, of course. Institutional investors and big-time arbitrageurs have long appreciated the speed of electronic funds transfers -- now the little guy has access, and the Web gives him a choice of destinations for the family nest egg.

Several stock exchanges -- including Russia's -- are already online, treating the Web as a billboard for investors. Since American and British brokers are already on the Web, itís only a matter of time before Singapore, Malaysia, and the other dragons of the Pacific realize that the Net offers direct access to Western capital. Online brokers can sell Malaysian stocks as easily as American ones, and a Web site is an inexpensive international sales office. There are real risks, of course. Developing nations tend to have very volatile economies -- even the Hang Seng in Hong Kong suffers stomach-churning highs and lows. Some inexperienced investors are going to lose their lunch (and shirts) on unexpected roller coaster rides.

And then there are the Aunt Maeís of the world. They arenít looking for high-flying returns; they want safe financial havens that donít ask a lot of questions. Most financial havens to-date -- Switzerland, Panama, etc. -- have thrived on relative proximity to wealthy nations with high taxes and large underground economies. With the Internet thereís no reason why the island kingdom of Tonga couldnít set up in the banking business.

And online stock markets and banks will have to compete. As digital cash and other online payment standards shake themselves out, itís going to be very easy to turn on a computer and transfer your money around the planet. And a good enough reason could make a lot of people turn on their PCs at the same time.

But how are governments going to like all of this capital mobility? Well, some of them wonít like it at all. The developed countries are probably going to go through contortions trying to track that out-flow of cash -- futilely, I suspect, since the countries on the receiving end will like it just fine.

Yup, Aunt Mae would have liked the Internet. But Iíll bet she still would have kept a few socks full of gold reichsmarks.


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Copyright (c) 1996 Jerome D. (Il Tooch) Tuccille. All rights reserved. Reproduction in whole or in part in any form or medium without express written permission of Il Tooch is prohibited. Mess with me and Iíll use your polished skull as a beer mug.