Imagine that the FBI mounted an ad campaign urging Americans to buy special pencils that transmit anything written with them to federal collection centers.

The ads note that the pencils combat terrorism and organized crime. They pledge that FBI agents would follow the law when they seek to read what you've written.But it turns out that few folks want to buy such pencils. So, to keep the FBI happy, Congress requires federal agencies to use them. And the agencies require anyone who files a government form to use them, too.

A plan along those lines is gaining ground here. Only rather than pencils, the object at hand is computer software. If the FBI has its way, tens of millions of Americans would have electronic copies of their computerized mail and financial and medical records put in special vaults.

Should President Clinton and Congress go along, it would become illegal to make or market software encrypted with codes that the feds can't break. Makers of encryption programs, whether for export or domestic use, would have to turn over decoding keys to a "trusted" third party. Law enforcement agencies could then get hold of them without your knowledge.

Last week, a new 20-person presidential advisory panel met for the first time to deal with the encryption issue. The panel represents banks, credit card companies, technology firms, police associations and nonprofit groups.

In a world where billions of dollars move between continents in nanoseconds at the click of a computer mouse, even that panel has drawn some skeptics. They wonder whether official barriers against exporting top-quality encryption software can hold up.

As a result of current policies, much of today's encryption software is of the one-size-fits-all variety. The Justice Department reports that security breaches, prompted by lax or inferior coding, is costing U.S. businesses and consumers $7 billion a year in fraud charges.

Another result: domestic software and computer makers can't compete with overseas firms as they write their own unbreakable encryption schemes. By the year 2000, industry sources estimate, this imbalance will cost the U.S. economy $60 billion a year, with the loss of some 250,000 jobs.

Perhaps for the first time, people can now write coded messages to one another that can't be readily deciphered.

As traditional decryption methods falter, we're left with two possible paths:

- If Americans are guaranteed their privacy through an absolute legal right to effectively encrypt their communications, then law enforcement agencies would necessarily be required to halt their attempts to penetrate privacy - lest they accidentally succeed.

- If law enforcement agencies are granted the absolute legal authority to succeed in their attempts to violate our privacy, then Americans would be barred from trying to keep any communications private - lest they accidentally do so.

Let's see which path your government would rather follow.