Recent efforts have been made to introduce privacy-conscious central bank digital currencies (CBDCs), which may surprise some. Advocates argue that with the right design and a CBDC bill of rights, concerns about increased surveillance can be mitigated. However, this idea is likely too optimistic. The government’s track record of undermining financial privacy rights, from the third-party doctrine to neglecting to adjust reporting thresholds, makes it difficult to trust the establishment of a “CBDC bill of rights.”
The risk of proposing a privacy-minded CBDC can be illustrated by an example from history. When Edward Snowden revealed the extent of domestic surveillance following the September 11 attacks, a lesser-known story within those revelations involved Thomas A. Drake, a former NSA official who proposed a system to protect privacy during surveillance but was ignored and later learned that the privacy protections were removed, resulting in one of the largest surveillance systems in U.S. history.
This cautionary tale should serve as a warning for proponents of CBDCs. Even with good intentions, a well-designed CBDC could quickly transform into something else, as history has shown. The possibility of expanding surveillance, especially in times of crisis, is a concern.
Experts, such as Chris Meserole and Ethereum cofounder Vitalik Buterin, have expressed similar concerns about the potential erosion of privacy and transparency in CBDC systems. Central bankers, including Federal Reserve Chair Jerome Powell, have also made it clear that privacy would not be a feature of CBDCs.
Given the multitude of risks and few benefits, the push for CBDCs is likely driven by governments seeking to maintain control over money in response to the rise of cryptocurrencies. The profit incentive for organizations and tech companies involved in CBDC development further complicates the situation. Proposals for “privacy-minded CBDCs” may turn out to be deceptive, as they are likely to serve other agendas.
Nicholas Anthony, a policy analyst at the Cato Institute’s Center for Monetary and Financial Alternatives, shares these insights in his new book, “Digital Currency or Digital Control? Decoding CBDC and the Future of Money.”
This article is meant for informational purposes and does not constitute legal or investment advice. The views expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.