Six citizens eagerly took to the witness chairs at a congressional hearing last week, confidently expecting to put their stories clearly on the record, only to begin squirming when the questioning took an unwelcome turn.

This was not the Waco or Whitewater investigation, though the hubbub of an overflow crowd and the novelty of the subject matter may have begged comparisons with those current obsessions of the Washington media.

The scene was the House Banking Committee hearing room, the guests were billed as experts in emerging forms of electronic money, and their discomfort stemmed from the dreaded R word: regulation.

The panelists - representing organizations such as MasterCard, Visa, and Electronic Payment Services Inc. that are developing smart cards and other electronic commerce mechanisms - were inclined to celebrate the hearing as a stamp of legitimacy, a nod of approval for their technical and entrepreneurial innovations.

The legislative spotlight, it seemed, could put interactive financial services and advanced payment methods on the map, once and for all.

But in the middle of the nearly three-hour hearing, one of a series on "the future of money" scheduled by the House monetary policy subcommittee, Rep. Edward Royce asked about a recurring theme in the testimony: the question of market forces versus regulation.

Four of the panelists came down decidedly against regulation. Scott Cook, chairman of Intuit Inc., articulated that majority view, seconded by Rosalind Fisher, executive vice president of Visa U.S.A., Heidi Goff, senior vice president of MasterCard International, and William Melton, chief executive officer of Cybercash Inc., a Vienna, Va., company that offers a payment system for the Internet.

David Van Lear, chairman of Electronic Payment Services Inc., the Delaware-based networking company owned by several prominent superregional banks, issued a concurring, if qualified, opinion.

Mr. Van Lear rattled off a series of questions that might require some form of oversight. Among them: "Who is liable in the event of lost or nondelivery of goods, or defalcations on the part of third-party providers? Does the consumer bear the financial risk in a system of electronic money on the Internet? Who will establish the laws (for commerce on the Internet)? Who has jurisdiction over a transaction - the laws of the purchaser in our country or the seller in another?"

"We are not in favor of undue regulation," Mr. Van Lear continued. But he did leave the door open to a modicum of regulation, if only to engender public confidence and system integrity.

"We do believe," he said, "that proper care must be taken to ensure that participants in these new electronic forms of money are capable of having the same level of confidence in them as they do in the current systems which function well for all of us."

Dissenting, and standing out in a crowd and a city that currently anathemizes government intervention, was David Chaum, chairman of Digicash Inc.

An expert in cryptology who has been tabbed a privacy advocate for the way he has built "perfect anonymity" into his electronic money system, Mr. Chaum said: "With electronic cash, just as with paper cash, it will be the responsibility of government to protect against systemic risk. This is a serious role that cannot be left to the micro-economic interests of commercial organizations."

Mr. Chaum, who began his remarks by telling the subcommittee that he is American even though his company is based in Amsterdam, said the country and the society have a critical choice to make about electronic payment technology. They can continue down the path of larger and larger data bases that threaten personal privacy and security, or they can adopt a "sound architecture" that incorporates convenience, tamper resistance, and enough privacy and security to assure consumers that they are in control and safe from intrusion.

"The core values we as a nation have fought for, and continue to stand for, are at stake," Mr. Chaum said.

Because of his nonconforming views, Mr. Chaum prompted more than his share of questions and held court longer than any other panelist. To the relief of the others, he didn't seem to move the Congress members much in favor of regulation.

But electronic money issues, it became apparent, do not lend themselves to black-and-white distinctions. The free-marketeers were not uncomfortable discussing regulation, at least on a theoretical level, and even Mr. Chaum put some laissez-faire licks into his call for government planning.

He said, "Governments who stifle the new technology while it is still in its infancy, before it has had a chance to develop and harmonize with our institutions, who don't proactively support needed infrastructure, or who fail to establish confidence by protecting against systemic risk will be left behind in global competition.

"Countries who take clear positions based on understanding of the technology and encourage needed developments stand to gain enormous economic growth and market leadership."

Ms. Fisher also made an international competitiveness point: "Other countries have encouraged products to take shape without undue interference... To create an environment in which the U.S. can assume a leadership role in these endeavors, we need to do the same."

It was an antiregulation, Republican majority, led by subcommittee chairman Michael Castle of Delaware, that organized the hearing. Mr. Van Lear of Electronic Payment Services is one of Mr. Castle's constituents, which may have had something to do with the fact that Mr. Van Lear got to speak first.

The committee also tolerated some unabashed self-promotion. Mr. Chaum plugged Digicash for having addressed all necessary "architecture" issues and said its "ecash" for Internet payments offers security "superior to that of paper cash" and is potentially "less dangerous to society than automated teller machines."

Visa gave the subcommittee members prepaid smart cards that they could use in a vending machine - which everyone seemed to accept as a supporting exhibit rather than graft.

Mr. Cook used a projection of a personal computer screen to demonstrate Intuit's new retirement planning aid, Quicken Financial Planner. He wanted to show the social benefits of technology, in this case software that can wake Americans up to the fact that they can and must plan ahead financially.

"The pros who are supposed to aid people don't always get it right," Mr. Cook said. "And a truly unbiased financial adviser is so expensive that only the very rich can afford it ... We at Intuit are trying to change this."

Rep. Castle made clear that the July 25 session had an informational and educational purpose, but he warned of the "enormous risk of undermining the system of exchange and the administration of justice."

"I'm certainly not strong on the idea of regulation," the congressman added, "but we don't want a runaway system."

Rep. Royce, a California Republican and the subcommittee's vice chairman, expressed a general distrust of governmental monetary management that sounded ironically close to Mr. Chaum's libertarian streak.

"In the Western world, governments routinely debase their currency," Rep. Royce said. "They do a bad job of managing the value of their currency."

Warning of the consequences of monetization of the national debt or a further explosion of counterfeiting, Rep. Royce said, "I would hope that digital money would encourage an end to the debasement of currency and encourage a stable unit of exchange."

Rep. Floyd Flake of New York, the subcommittee's ranking Democrat, recalled a previous hearing on the proposed replacement of dollar bills with coins. "What we are talking about now goes far beyond paper currency or coins," he said. "I question whether we may end up wasting millions of dollars for coins that won't have any uses."

"My expectation is that physical currency will be with us for the rest of our lives," Mr. Cook responded. "Don't get taken in by the hype. E-mail is here, and the U.S. Postal Service is more popular than ever. Consumer habits change very slowly."

The electronic money experts had little to say on specific questions regarding monetary policy and control. Rep. Jack Metcalf, R-Wash., got quizzical looks after he asked if banks and others might become "issuers of money" - a violation of the Founding Fathers' principle that "only government should issue money."

Mr. Melton of Cybercash tried to reassure him that "the banking system creates money, and it is already highly regulated." Mr. Van Lear added that no new money is created by the transfer of funds from a bank account onto a chip card, which is functionally similar to a cash withdrawal from an ATM.

Mr. Cook based his free-market argument on the premise that "this field is so nascent, regulation would likely stunt useful developments." Existing financial industry rules are more than ample, he said, but may need "tuning" because many "were written before a PC was a glimmer in the imagination."

"We recognize the need to work closely with regulators and legislators to create a healthy and accessible payments system," said Ms. Goff of MasterCard. But she added that new rulemaking would be "premature."

Despite the fact that regulation crept into the discussion, the free- marketeers came away satisfied with the hearing.

"It's good we had this chance," Ms. Fisher said afterward. "There was some concern with all the headlines that these things are getting out of control."

"They're asking good questions," Mr. Cook said.

Mr. Melton expressed a hope that any congressional action would come with "due deliberation." He believes it would take "a big mess-up" to prompt regulation, which companies like his are intent on preventing.

The hearing also got good reviews from people not directly involved.

Marcia Sullivan of the Consumer Bankers Association, who has organized a committee looking into electronic money issues, thought the congressional attention was timely and appropriate. "Mike Castle was looking to gather information, not legislate, and that's good. We're delighted there will be more hearings."

"Basically, I'm pleased," said Tim Jones, chief executive officer of Mondex, the smart card payment system developed by National Westminster Bank of London. "It means more recognition that electronic cash is a significant new development."

"It's good that Congress is learning about it," he added. "But there is a big difference between enabling markets to evolve and regulating. There is a danger in any market of regulating before the shape of that market becomes clear."

William M. Randle, senior vice president of Huntington Bancshares and a strong advocate of electronic delivery systems, said any official-level inquiry makes him nervous.

"I have been expressing concern about nonbanks" getting involved in on- line banking services, Mr. Randle said. "But I'm not for controls. It's too early, and you don't see it happening anywhere else in the world."

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