Electronic records have reduced the costs of monitoring how we use our money with simple algorithms.
Furthermore, increasing anti-money laundering (AML) regulation and efforts by taxation authorities have forced financial institutions worldwide to monitor, and sometimes even reveal, information about the financial activities of their clients.
AML regulation in the United States dates back to the Bank Secrecy Act of 1970. The rise of international drug trafficking and money laundering concerns of governments worldwide led to the creation of the international Financial Action Task Force (FATF) by G-7 Summit countries in 1989, creating a more global regulatory base.
Post 9/ 11 in 2001, FATF expanded its ALM regulation to combat terror financing.
As a result, many countries started to impose Know Your Customer (KYC) regulations that require financial institutions and other regulated industries to establish the identity of their customers, keep records of transactions, and notify authorities of potentially suspicious activities of their customers in case of government-defined “threshold transactions.”
Such practices, as a result of regulatory impositions, are gradually eroding the fungibility and hence quality of money.