Efforts to propose privacy-centered central bank digital currencies (CBDCs) have recently emerged, but skeptics argue that such a system can only work if it is designed correctly or if a “CBDC bill of rights” is established. However, trusting the United States government to implement such safeguards is questionable, given its history of undermining existing rights, such as financial privacy protections.
History provides a cautionary example. When Edward Snowden leaked classified information in 2013, it was revealed how domestic surveillance had expanded. Within these revelations, a former NSA official, Thomas A. Drake, proposed a system that would provide privacy safeguards during surveillance. However, the proposal was ignored, and the program was eventually used without the privacy protections Drake had suggested.
This experience serves as a warning for those advocating for CBDCs, suggesting that even well-intentioned designs could be misused. Chris Meserole of the Brookings Institution and Ethereum cofounder Vitalik Buterin have expressed concerns that CBDCs may not offer the transparency, verifiability, and privacy of cryptocurrencies once they are developed.
Central bankers have openly stated that anonymity and complete privacy would not be an option with a CBDC. Considering the risks and the limited benefits, implementing CBDCs may not be the best path forward. Additionally, it is unlikely that CBDCs will improve financial inclusion, payment speeds, monetary policy, or the dollar’s world reserve currency status.
Given the potential risks and the profit incentives for organizations and tech companies, proposals for privacy-centered CBDCs may not deliver the intended outcomes. Therefore, it is important to carefully consider the implications of implementing CBDCs and to critically assess their potential impact.
Nicholas Anthony is a policy analyst at the Cato Institute’s Center for Monetary and Financial Alternatives and a guest writer for Cointelegraph. His views expressed in this article are his own and should not be considered as legal or investment advice.