Mondex Internationalís objective is to replace physical cash with convenient and secure electronic instruments. The Mondex electronic money is unique because it is the only electronic method that can mimic all physical cash transactions economically. There are many advantages of using Mondex cards, we will review these advantages as we describe the operations flow.

In the Mondex system, there is one issuing bodyæ the originatoræ of electronic value for the country. The originator serves as the issuing bank for the Mondex system and provides the Mondex member banks an equal amount of electronic Mondex value in exchange for prime negotiable instruments or cash. Consumers as cardholders, load Mondex value on their card from a bank ATM, or a Mondex telephone. The Mondex card can then be used as cash. Using a "Wallet" (a special Mondex Electronic Wallet) which resembles a pocket calculator, customers can exchange electronic value with retailers or individuals. Mondex provides consumers with the same privacy as cash. Once the electronic value has been withdrawn from a bank, only the cardholder has knowledge of the monetary movement; no one else can trace it.

For other stored value Smart Cards, the value of the card simply represents a transaction of prepaid money. The Mondex card is more versatile, by using a private or public telephone connected to the Mondex system electronic value can be withdrawn, deposited, or sent to a person at a remote location over the telephone network (the card also has the potential to store other important personal information such as medical history). By eliminating physical transportation of cash the risk of lost or stolen currency is minimized.

For retailers, Mondex, just like cash, provides for the immediate transfer of payment from a customer's card to their own account; retailers do not need to get authorization. In addition, using Mondex can actually be quicker than physical cash transactions requiring change. When the retailer accepts Mondex cash for a purchase, the Mondex card is placed into a slot on the retailer terminal. A screen on the terminal displays the total of purchases, and then shows the retail transaction is in progress. As long as the purchaser has enough value on the card it will then show that the transaction is completeæ usually within three seconds. The exact amount of money has now left the purchaser's card and has moved to the card held inside the retailer's terminal. At the end of a day, payments can be transferred securely to their bank or directly to vendors. The need to transfer physical cash to a bank is eliminated.

Making payments with Mondex cash using a Wallet or telephone eliminates the need to use expensive clearing systems such as existing banking networks, therefore settlement operating costs will be lower. However, an initial investment in infrastructure is required, and low cost terminals and access-entry points must be established. Low operating costs will help position Mondex to meet the needs of the Internet.

Internet service providers are discussing the viability of charging a fee for their content. One business model would have service providers collecting as little as one cent for access to their pages, so the proportion of "micro-transactions" over the Internet is likely to be much higher than in the physical cash world. As a result, overhead could severely restrict the usage of electronic cash over the Internet. With Mondex, the marginal cost of a transaction is negligibleæ so charging a cent would be feasible both economically and technically.

Because Mondex security does not require central accounting systemsæ as with traditional credit cards and many other electronic money systemsæ settlement overhead is substantially lower. The other systems with central accounting will have to automatically impose overhead on each transaction. However small the overhead, it risks making the transaction itself uneconomic. Currently, approximately 45% of physical cash transactions range between US$1.50 and US$7.50æ too low to be economical for the credit card providers.

Mondex Card (Electronic Purse)

The Mondex Card is an integrated circuit card, a Smart Cardæ a normal plastic card with a small microcomputer "chip" embedded in it. The card is an ISO 7816 integrated circuit card, the international standard for IC cards. The microcomputer is programmed to function as an "electronic purse." The electronic purse can be loaded with value, and stored securely until it is used to pay for goods or to receive value from retailers, service outlets, or transferred to another individual with a Mondex card (this is accomplished simply by inserting the card into a card reader).

The electronic purse can be locked using a personal code ensuring that only the card's owner can access the value on it. Mondex chips have been designed to withstand normal extremes of cold and heat, humidity, X-rays, or electrical interference. The Mondex card is secure and reliable because it uses a Hitachi H8/310 series microprocessoræ a smart card chip with 8KB of memory, in which is embedded the protocol for receiving, storing, transacting and locking Mondex value in up to five different currencies. No signature or authorization is required so Mondex value can flow as freely --yet more securely and widely than cash. The card's memory also stores a log of the last ten transactions. The card has a number of high security features that prohibit illegal access and unauthorized duplication, and provide reliable data retention.

Mondex Wallet

Each Wallet has two reader slots to allow for the exchange of value between card holders, making it suitable for both personal and simple commercial transactions, for example, for taxi drivers can receive payment from passengers. If desired, it is also possible to transfer directly from Electronic Wallet to Electronic Wallet using a connecting cable. There is also a small and simple LCD hand held screen display to display the stored value on the card for the consumers convenience.

Generally speaking, it is much more difficult to accomplish both anonymity and security at the same time than it is to pursue one at the expense of the other. To achieve this dual goal, Mondex has developed multiple levels of security to protect the integrity of the system while providing a convenient solution.

Encryption (Chip-Level) æ With paper currency and coins, fraud can take place fairly easily with only an 'adequate' copy that can be made with relatively inexpensive technology (i.e. a color printer). With Mondex, fraud is relatively impossible, the cost of the technology capable of making counterfeit chip cards is too expensive to be economically viable, and even then only a 'perfect' forgery will do. If a forged Mondex chip or the cryptography is not perfect it will fail. Mondexís security is based upon on a unique "digital signature" which is generated by the chip on the card and is recognized by the other Mondex card involved in the transaction. This recognition process also identifies the counter party card for which the cash is intendedæ so funds cannot be intercepted by a third party without detection.

Value Transfer Protocol (Communication Level)æ The protocol operates when value is being moved between chip cards; for example, when you use your card to make a purchase in a shop and the payment is made via a Mondex terminal. After placing your card into the terminal a transaction is initiated. The transaction consists of two steps which ensure that the transferred value reaches the correct destination and that fraud does not take place.

The customer's card checks the digital signature and if satisfied, sends the amount with its own digital signature attached. At this point, the value is deducted from the total value held in the customer's card. The chip card in the shopkeeper's terminal checks the digital signature and if satisfied sends acknowledgment, again with a digital signature. Only nowæ after the amount has been deducted from the customer's cardæ is value added to the card in the shopkeeper's terminal. This is to prevent the possibility of duplication or unauthorized creation of value. The digital signature from this card is checked by the customer's card and if "OK", this process is complete. If at any point a check failsæ for example, due to a power failure at the terminalæ the protocol is designed to continue automatically and complete the transaction if possible, when power is restored. If this is not possible it automatically records the failed transaction on a detailed log.

Ever-Evolving Security (System Level)æ Just as banknote design is periodically changed to provide safeguards against forgery, originators in the Mondex electronic cash system will also be able to 'replace currency.' This can be done most obviously by issuing a new generation of cards. Alternatively, a new generation of cryptography can be introduced without changing cardsæ this provides Mondex with the capability to 'change the locks' without disrupting ordinary business and without giving any prior warning to any would-be counterfeiters. This sporadically changing cryptography system can be illustrated as follows.

• Each Mondex card is issued with two types of cryptography in one card (e.g. A-type and B-type), and initially only one type is activated (e.g. A-type).
• After a certain period, the Mondex Global Key Center starts to diffuse Mondex cards in which B-type cryptography is activated.
• A Mondex card is programmed to change its cryptography from A-type to B-type, when A-type card is connected with B-type card.
• B-type cards diffusion is made sporadically.
• After the expiration of the Mondex card (two years later), new type of cryptography is installed (e.g. C-type and D-type).

Mondex Global Key Center (Operation Level)æ Security starts with the development and manufacture of the chip (inside secure environments), and continues with the incorporation of the chips onto cards (again inside securely controlled environments). Then follows the card personalization and card enabling processes carried out at Mondex's Global Key Center. At the Key Center, "cryptographic keys" are installed in the cards and various limits are set on the card's use. At each step in the process checks are automatically made on the integrity of the chip and the software. One of these steps ensures that the Global Key Center cannot produce cards with anything but zero value. Any failures result in the cards involved being disabled and destroyedæ again under secure conditions. A Mondex card, prior to its receipt by the genuine cardholder holds no value.