How Paypal robs the Bank of England

Digital currencies might start creating a sticky situation for central banks.

Have you ever wondered how the rise of digital currencies will impact on the monetary base, and the effects that will have on seigniorage revenue to governments worldwide? No? Well, this pair of articles by the Financial Times' Izabella Kaminska, "Why central banks should take charge of their digital currencies" and "Turning mobile money into M0" is interesting nonetheless.

Kaminska examines the typical problem central banks have with digital currencies, which is that they tend to mess around with the way banks expect the money supply of the nation to work. The immediate downside of that is that it impacts on seigniorage, the revenue accrued to a government by its right to mint coinage.

In other words, when you use PayPal rather than posting a £50 note, you need never hold that currency, and the government never receives the revenue for having printed it.

She writes:

Consequently, what you end up with is something very different to cash of the realm. In many ways, it’s worse than zero-yielding money due to the natural decay associated with transactional, creation and redemption costs. The other point is that Safaricom [the vendor of a hugely popular Kenyan mobile currency] is actually behaving much like a quasi-autonomous state within a state that’s issuing its own private money system, the value of which is constantly pegged to the official currency of the land.

How can nations fight back? (Assuming, of course, they ought to fight back — but that revenue is likely to be mighty tempting.) One possibility is by working with digital currency vendors to create payment mechanisms which don't require holding a parallel currency to work. And make no mistake, even though PayPal denominates its accounts in pounds and dollars, it's a parallel currency in all but name.

Jean-François Groff, one of the pioneers of the Web at CERN, is working on that option. Mobino, his company, is a mobile payment system which works on real-time debiting, not on keeping a float of a second currency on tap:

Mobino’s system aims to cut out as many intermediaries from the debit process as possible by getting you, the customer, to strike up a single direct debit agreement with itself. The company then charges the customer for transactions conducted with partner vendors, whilst the customer deals only with Mobino rather than a multitude of online or retail vendors.

And if that scheme was done by Mobino — or a similar system — working with a central bank, then the costs of running it could be funded from the seigniorage revenue it returns to the government. Rather than the cost of "printing" money being the actual ink and paper, it would become the price of maintaining servers and bandwidth.

In an ideal state-controlled money world, you could imagine the system mutating into one where the central bank itself ended up billing you directly for the use of their digital cash. So, rather than withdrawing physical cash to conduct your payments, you’d be transacting state-issued digital cash, now credited or debited from your account as quickly as a bank credits or debits cash to you at the ATM wall.

But, while Kaminska mentions it in passing, it would be interesting to see the analysis applied to Bitcoin. Lord knows the currency has its flaws, but it's the only one of the successful(ish) mobile payment systems which actually embraces the fact that it is a parallel currency — and a freely floating one, at that. The Bitcoin ecosystem has a specific method for distributing the seigniorage it generates, but also gradually reduces that rate; by 2140, the system will likely be in de-facto deflation.

By moving the transaction entirely into a parallel currency, the system is also more efficient than even Mobino could ever hope to be — provided you don't plan on converting Bitcoins into real-world money. If you do, things get trickier; the exchanges have had a number of high-profile failures, and are probably the weakest point in a network which manages to combine cryptographic perfection with an incredible amount of possibilities for human error.

It may be the case that central banks have to start examining what their role would be in a world of digital currencies; but if they do, it may be better for them to skip the sticking-plaster world of PayPal and Mobino and move straight to something designed for an all-digital world from the start.

Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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“Grooming rings are the biggest recruiter for the far right”: Rochdale and Telford prosecutor

Senior lawyer Nazir Afzal warns the government, and communities implicated in street grooming, to do more – or the situation will get worse.

Nazir Afzal, the former chief prosecutor who led prosecutions against a child sex abuse ring in Telford, and oversaw similar street grooming cases in Rochdale, tells Anoosh Chakelian why these crimes go under the radar, and how to tackle them.

How widespread are these street grooming cases?

My involvement started with Operation Span, which is the Rochdale prosecution, in 2011. And prior to that, when I was in London as chief prosecutor, I was aware it was an issue bubbling but wasn’t getting any attention.

Obviously we’ve now got Telford, Newcastle, Peterborough, Sheffield, Rotherham, Oxford, Bristol. If anybody watched the BBC’s film Three Girls, at the very end, they list I think 16 towns and cities where prosecution had taken place.

We know that it is extraordinarily widespread. Wherever you look, if you turn over the stone, you’ll find this kind of behaviour. 

What do each of these cases have in common?

What we discovered, ten years ago nearly, were groups of men working invariably in the night-time economy, either in taxi services or takeaways or that kind of business, hiding amongst whom were these predators. They’re not gangs in the way organised crime gangs are. They’re very loose networks.

There are vulnerable young girls in so many parts of this country, who nobody else seems to care about. And what these victims need is warmth, transport, mind-numbing substances, food. And where are they going to find that? You’re invariably going to find that in the night-time economy.

I used to describe them as easy prey for evil men. They’re easy to identify, and what tends to happen is that once they’ve identified one victim, through her networks very often they’ll find others.

These men are just taking advantage of the dysfunctional nature of children’s services and young people’s services that have existed now for some time. If anything, it’s got worse, because while there is tremendous learning, the resources have been reduced.

So really good practices – like one council would have a van that would go round fast food premises in the evening to identify young girls at risk and talk to them – are cancelled because they don’t have the money to do it anymore.

People work in silence. Information was available and wasn’t shared. That style of working is part of the problem. So time and again, people are just keeping things to themselves. It’s a lack of competence on their part. It’s competence, it’s not conspiracy. Easier to blame a conspiracy than say “you were rubbish at your job”. And that is constantly something that I have come across.

The victims don’t even see themselves as victims very often. Because of the poverty of relationship education and sex education in schools, these men make them believe that they love them. I remember in the Rochdale case, one of the girls kept calling one of the defendants throughout the trial her “boyfriend”. She doesn’t know any different; nobody has taught her what’s a good relationship, what’s a bad relationship.

Time and time again, survivors have the answers. What the authorities should be doing is listening to their local survivors, and building their response and their interventions on what the survivors tell them: “This is a journey I took, this is where you could’ve intervened. This is where you could’ve prevented my abuse or somebody else’s abuse.”

There are some very, very courageous, extraordinarily strong women now more than willing to share their experiences. And we do so little of that [talking to them].

How can the situation be improved for victims and potential victims?

A lot of these victims have criminal records as a result of behaviours they were made to do – we should be erasing those criminal records. That’s the way we can rehabilitate them. I think victims need compensation for what they’ve been through. And they also need lifelong support, and that’s not being produced.

Taxi drivers in Coventry are trained in local signs of abuse; it’s part of their licensing arrangement and I work with them actually on delivering that. Why is that not happening everywhere else in the country? Why are we not licensing and training takeaway establishments in the same way?

I discovered recently that in Newcastle, they’re delivering this kind of training. Sadly, it’s voluntary. The people you need to engage with are not coming. So unless you have mandatory training for people working in the night-time economy, it’s not going to happen.

Additionally in the hotel trade, one or two large chains are doing some good work in identifying young people at risk, and sharing intelligence. Why is that not everywhere? We know that predators use cheap hotels and places like that for the abuse they carry out.

The intelligence is there, it’s just not being used. And we’re not using community intelligence either. The vast majority of victims in this type of sex offending are white girls. There are Asian girl victims too.

When I prosecuted the Rochdale gang, immediately afterwards, I prosecuted the ringleader again for his abuse of a girl of the same ethnicity as him. That didn’t get any publicity and he got 21 years for that. So there are victims from the Asian community but because of issues such as honour, shame, and the fact that very often they’re told by their families that it’s “your fault”, they’re not coming forward.

So we need to understand that there are victims out there who are even less likely to report their concerns because of familial and community pressures.

We are scratching the surface, and it really irks me that each and every time it gets in the news, it’s two things.

Number one is that it’s the biggest recruiter for the far right in this country. If you go on any far right website, they use the grooming gangs more so than Isis or terror attacks as the means by which they recruit far right activists.

So we should be tackling this, and by “we” I mean everybody, including the communities most impacted, and most implicated.

Number two is we need to intervene much earlier, but we also need to do some perpetrator programmes. There are perpetrators involved who are still in denial about their activities. There are still people out there who think “well, it’s fair game”.

How can it be prevented from happening in future?

Much more work has to happen in terms of the perpetrators and perpetrators of the future – and that, of course, involves early education.

Too often, we wait until high school to start talking about gender equality and relationship education. We should be starting to talk to them about these types of behaviours and what they should be looking out for when they’re five, six and seven. We’re just building up a problem for the future by not doing any of this.

We should have mandatory reporting of child sexual abuse. If you see someone being abused, or you perceive to be being abused, then it should be your duty to report. What the government has said recently is that social workers have come out against it. And my response would be: “Well they would, wouldn’t they?”

NGOs are doing phenomenal work in its field, so there are lots of charities and groups up and down the country trying to identify victims and potential perpetrators. They don’t get enough funding. They’re working on a shoestring.

What do you say to those suggesting ethnicity plays a part?

The vast majority of children and young people are abused within the family. We must not lose sight of that. The second largest group of victims are online. Today, you can pay pennies to watch a child being abused in real-time, somewhere in the world. The third largest group is institutional; we know about places of worship – churches, mosques – we also know about the FA and football and judo and sporting clubs, and the BBC.

Street grooming is the smallest – significant nonetheless, we’re still talking about thousands of victims. It’s smallest comparatively to the other three areas.

More than 80 per cent of child sexual offenders are British white men.

When I’ve prosecuted Stuart Hall or Max Clifford, or whatever, people never said “oh, his religion, his ethnicity”, as if that was important. It wasn’t in their cases, and they remain the vast majority of offenders.

I’ve always said the ethnicity of street groomers is an issue. We can’t pretend that’s not what’s happening.

The night-time economy is one issue. But it’s not the issue.The issue is the availability and vulnerability of young girls. The issue is the fact that they are unwanted and unloved. They get no support: the NGOs that support them aren’t properly funded, neither are children’s services. That is the issue.

But ethnicity is an issue, and I don’t think the community is doing enough. I was really pleased to see, some months ago, I was invited to the launch of the Greater Manchester Muslim community organisation, and one of their four priorities is tackling grooming. And that is rare. Most communities would rather not talk about the subject, would beat me up [verbally] quite regularly for mentioning it, and unless we tackle it, bigots don’t need an excuse to hate you, so why do we give them an excuse? Why are we not tackling an issue that can be tackled?

You can’t just generalise about what it is that might be driving these men. We need to do a great deal more research into background, why perpetrators become perpetrators, in the same way we’re trying to identify why victims become victims.

Authorities are often accused of being scared to act because of political correctness. How do you feel about that?

I’ve not come across anybody who’s scared. I get bored of this going unchallenged. These are difficult cases to prosecute. Very often, the victim treats the prosecutor or the investigator as the bad guy for trying to destroy their “relationships”. Competence was the issue – people not understanding how to bring these cases. They had to leave their tick-boxes and their normal pro formas aside.

Some people, no doubt, may not want to offend a certain community, but I would imagine they’re in the minority. The large majority fail to engage because it’s really difficult.

Anoosh Chakelian is senior writer at the New Statesman.