CNET News.com reports:

Lawmakers in California have scheduled a hearing for later this month to discuss privacy issues surrounding a controversial technology designed to wirelessly monitor everything from clothing to currency.

Sen. Debra Bowen, a California legislator recently on the forefront of an antispam legislation movement, is spearheading the August 18 hearing, which will focus on an emerging area of technology known as radio frequency identification (RFID), a representative for Bowen has confirmed.

RFID tags are miniscule microchips, which already have shrunk to half the size of a grain of sand. They listen for a radio query and respond by transmitting their unique ID code. Retailers adore the concept, which enables them to automatically detect the movement of merchandise in stores and monitor inventory in warehouses using millions of special sensors. CNET News.com wrote about how Wal-Mart and the U.K.-based grocery chain Tesco are starting to install "smart shelves" with networked RFID readers.

According to Declan McCullagh of CNET News.com Proponents hail the technology as the next-generation bar code, allowing merchants and manufacturers to operate more efficiently and cut down on theft. The privacy threat comes when RFID tags remain active once you leave a store. That's the scenario that should raise alarms - and currently the RFID industry seems to be giving mixed signals about whether the tags will be disabled or left enabled by default.

Further, unchecked use of RFID could end up trampling consumer privacy by allowing retailers to gather unprecedented amounts of information about activity in their stores and link it to customer information databases. They also worry about the possibility that companies and would-be thieves might be able to track people's personal belongings, embedded with tiny RFID microchips, after they are purchased. Katherine Albrecht, the head of Consumers Against Supermarket Privacy Invasion and Numbering, a fierce critic of RFID technology says:

If you are walking around emanating an electric cloud of these devices wherever you go, you have no more privacy. Every door way you walk through could be scanning you.

Policy makers in Britain are also starting to ponder the privacy implications of RFID. A member of Britain's Parliament has submitted a motion for debate on the regulation of RFID devices when the government returns from its summer recess next month.