But since the money in those networks cannot be drawn out, but must be spent inside the community of those using that particular system, any fraud can easily be reversed. The first virtual money systems are likely to appear on the internet very soon. The first significant applications will probably be business to business networks within geographic trading areas. These will be strongly supported by the growing interest amongst business in using internet in general and World Wide Web in particular for advertising, ordering and invoicing. Tax and the authorities.
Local money is taxable.
The fact that it moves in circles doesn't change anyone's constitutional or moral responsibilities to their local, regional and national communities. If those who wish to use local currency systems are to avoid a battle with the taxman, there must be clear procedures through which the authorities can, if they have due cause to investigate someone, and the necessary court orders, access the financial records of trading in local money in just the same way as they can presently gain information from banks. If no such possibility exists, then the risk of tax fraud is substantial, and we may expect governments to be seriously and quite properly concerned. This basically requires that all local currency transactions by a particular user are recorded through at least one secure site. The recommended registry and account recorder structure meets these requirements.