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Leading Article: Privacy v trade: a cryptic battle

A NEW trade war may be starting between Europe and America; one all the more dangerous because few people are even aware that the trade exists. It is a trade war over computer cryptography, a subject that may seem as esoteric as Egyptology.

In fact, it is as important as oil. This is because we have moved into a global economy where money no longer exists as a pile of gold or paper in a bank's vaults, brought out by clerks, but as information in a bank's computers, accessible to anyone with a plastic card and the right code word. Only 20 years ago, the bank robber wore a crash helmet and used a sawn-off shotgun. Now he wears a suit and uses a password. In an economy based on goods, property is guarded by armed men. In an economy based on information, the guards on property are codes and ciphers.

These ciphers have to be almost uncrackable. The security of commerce depends on reliable secrecy as much as it depends on safes that cannot be blown and guards who cannot be bribed. Modern computers have no trouble with that. The same power that allows them to co- ordinate in vast networks, shuffling information (or money) around the world at the speed of light allows them to manipulate vast prime numbers to produce unbreakable mathematical containers for sensitive information in fractions of a second.

This secrecy can be provided by any business computer using programs that are now freely available, though the American government has tried for years to control their spread. Anyone can now have access to absolute privacy.

That is where the trouble starts. For among the beneficiaries of this new-found privacy could be the Medellin cartel, the IRA, or an international paedophile ring: everyone, in short, in whose doings the security services have a legitimate interest.

The American National Security Agency has an ambitious solution in mind. It plans to make freely available a set of chips, known as 'Clipper', to do our encryption for us. The NSA hopes that Clipper will be built in to mobile telephones, fax machines and modems and universally used.

There is one small snag: the Clipper chip will have built into it a 'pass key': a mathematical function or super password that would enable the government to read every message sent if certain legal conditions were fulfilled.

This proposal is being fiercely contested, not only because of the power it gives to governments but also because governments cannot be trusted not to pass on commercial information to favoured national companies. A legal guarantee of privacy is much less reliable than the iron complexities of cryptographical mathematics.

The worst possible outcome would be the division of the world into cryptographic blocs within which governments could read whatever they liked. In an information economy, encryption schemes might take the place of tariff walls, and do quite as much damage.