The ECB has recently published its first progress report on the development of a central bank digital currency (CBDC). The report focuses on privacy provisions and highlights the use of pseudonymization, hashing functions, and encryption features to protect individuals from being tracked through their transactions. It also states that payment service providers cannot utilize consumer financial data for commercial purposes without obtaining explicit consent from the individuals involved.
The report also mentions the possibility of conducting offline transactions directly between parties without the need for a third-party intermediary. These transactions would be settled directly on users’ smartphones or on “smart cards” that may be battery-powered or rely on bridging relays to synchronize with the CBDC blockchain.
The report concludes by setting a timeframe for the Rulebook Development Group to finalize the first draft of its technical and regulatory CBDC framework. The group is expected to deliver the final draft by the end of 2024, after consulting with service providers, infrastructure builders, and the general public.
However, there are concerns about the widespread use of CBDCs, particularly regarding privacy and fundamental human liberties. The crypto community is growing increasingly skeptical of CBDCs, citing examples of state actors seizing assets to suppress dissent. A 2023 report from Trezor revealed that 73% of respondents expressed unease with the privacy implications of CBDCs and the level of control they would grant governments over consumer behavior. Critics argue that these risks outweigh the benefits of CBDCs, especially when stablecoins are considered.
In the United States, lawmakers and politicians are leading the opposition against CBDCs. Former President Trump has vowed to prevent the implementation of a CBDC, and the issue has become increasingly divisive along party lines. In May, the U.S. House of Representatives passed the “CBDC Anti-Surveillance State Act,” a bill that highlights the dangers of centrally controlled digital money to liberty in open societies.
Overall, while the ECB is making progress in developing a CBDC, concerns about privacy and government control continue to be major obstacles to widespread adoption. The opposition to CBDCs in the United States further underscores these concerns and raises questions about the need for central bank digital fiat in the presence of stablecoins.