I write the article RFID in the euro notes? in The Sprout of June 2004.
Will radio tags the size of a grain of sand be embed in the euro notes? At least it has been discussed as an option by the European Central Bank (ECB) for the €200 and €500 notes in the year 2005. But for it to work, argues Waldemar Ingdahl, we would all have to install tiny transceivers in our wallets…
The ECB is deeply concerned about counterfeiting and money laundering. Counterfeiting of euro notes has been a problem in Greece already and there have been cases in the new member countries too. Money laundering is also an issue of increasing concern, and that is probably one of the reasons that the higher denominations are considered for tagging. The €200 and €500 notes are the ones that are the most popular for more "informal" transactions.
Among the current security features in the current euro are threads visible under ultraviolet light. But businesses and stores often find it hard to judge a note's authenticity, as current equipment seldom can tell the difference between false currency and old notes with worn-out security marks.
Radio frequency identification (RFID) tags are small microchips that listen for a radio query and respond by transmitting their unique ID code. Besides acting as a sort of digital watermark, they could be used to speed up routine processes such as counting. A stack of notes could be passed through a reader and counted immediately.
Hitachi, a Japanese electronics firm, says it has successfully operated the world's smallest non-contact chip, only one-third of a millimetre across. In a euro note the number could contain a serial code as well as details such as place of origin and denomination. Data can only be written on the chip during production, and not after it is out in circulation. The ECB has reportedly started talks with Hitachi, and so has the The Bank of Japan, that is considering RFID tags for its 10,000-yen bank notes.
Will this be feasible? Probably. But not in the year 2005 already, and the actual implementation of the tagging might encounter serious problems.
First of all there is the matter of cost, it's not just about putting the tags in the currency but also installing the new systems for scanning them, and the tag chip technology is still a bit too undeveloped. Even Hitachi's present non-contact chip would be difficult to fit into a bill.
There is also the issue of trust. Putting RFID tags in currency would be seen as a breach of privacy, as there would be a temptation to use it to track purchases and transactions in order to trace banknotes for fiscal reasons. Would the users confide in the ECB not tracking their transactions?
Tracking euro notes could prove to be exceedingly difficult, simply because many transactions are informal in their nature, and the change of ownership of individual notes is not recorded between for instance friends, relatives, and spouses. Many transactions inside companies are also more informal in nature, and do not have to involve any foul play, and even if it was mandated by law that all companies put tag readers in their cash registers to track the bills, this would not be very hard to get around.
Wal-Mart, the world's largest retailer, is looking to integrate RFID technology in its inventory system. Jim Crawford, an analyst at Retail Forward, calculated that if Wal-Mart stored every RFID read of every item on every shelf, it would generate nearly 8 terabytes of data per day. Now, Wal-Mart does not have to store every read since most reads will simply tell that the good is still on its shelf. But in order to track cash transactions for everyone using euro notes, it would be necessary to record every time a bill changed hands. The tracing would thus involve immense amounts of rather complex data to store and analyse.
In order to make the tracing of bills work we would all have to buy wireless RFID readers and put them in our wallets. That way, the database could be updated every time we take a bill out of our wallet or put in a new one. But if this was implemented it would be far easier to get rid of cash altogether and create an RFID payment card system. This change in our monetary system would be highly improbable in the near future, particularly because of the lag in society to changing to digital currency and the major security issues involved.
Adapting RFID tags in currency already in the year 2005 is in any case most probably a bit too premature, even if that adoption could make euro notes harder to counterfeit. When an emerging technology first enters the public consciousness its potential benefits and drawbacks are often exaggerated, and its final mature form is a matter of societal negotiations between producers and consumers. The ECB would do well to consider this when examining the options for introducing RFID tags in its currency.