Original Title: “‘Privacy-minded’ CBDCs are a wolf in sheep’s clothing”
Author: Nicholas Anthony
Translated by: Chris, Techub News
Nicholas Anthony, an analyst at the Cato Institute’s Center for Monetary and Financial Alternatives, has authored works including “The Infrastructure Investment and Jobs Act’s Attack on Crypto: Questioning the Rationale for the Cryptocurrency Provisions” and “The Right to Financial Privacy: Crafting a Better Framework for Financial Privacy in the Digital Age.”
Nicholas Anthony argues that CBDCs claiming to prioritize privacy may not deliver on their promises. History has shown that even well-designed systems can quickly morph into tools for extensive surveillance. Given the disregard for privacy by governments and tech companies, CBDCs could lead to heightened financial monitoring rather than protecting user privacy.
There is concern among some about recently proposed “privacy-minded” CBDCs. Proponents of CBDCs refute fears that they will lead to stricter surveillance, stating, “It just needs to be properly designed,” or “We just need a CBDC Bill of Rights.”
The concept of “privacy-minded” CBDCs sounds good in theory but may be too good to be true. Frankly, there is little reason to believe that the U.S. government would enact a “CBDC Bill of Rights,” given its track record of undermining existing rights. From the formulation of third-party principles to the failure to adjust reporting thresholds for inflation, the government has significantly weakened protections for financial privacy.
Another historical example makes the risks of proposing privacy-focused CBDCs more concrete. When NSA advisor Edward Snowden leaked classified information in 2013, it revealed how domestic surveillance systems had ballooned post-9/11. One example relevant to CBDC proposals comes from former NSA official Thomas A. Drake, who shared a system proposal at NSA aimed at better protecting Americans’ domestic privacy.
The proposal was for a surveillance system where all identifying information was anonymized by default. However, if necessary, anonymity could be lifted and identities revealed through warrants. Drake presented this idea to NSA leadership but was told the NSA wasn’t interested.
Later, it was found that Drake’s proposal was used, but the privacy protections for Americans were stripped away. In essence, what was intended as a limited surveillance system with respect for American privacy inadvertently became one of the largest surveillance systems in U.S. history.
This incident should serve as a warning to CBDC supporters. The history of financial surveillance suggests that, much like Drake’s experience at the NSA, even a well-intentioned design can quickly become something entirely different.
Chris Meserole, Director of the Artificial Intelligence and Emerging Technology Initiative at the Brookings Institution, aptly addresses concerns about the risks of CBDCs being used for surveillance and control in the U.S.: “I’m not worried about the U.S. immediately going down this path, but I am deeply concerned that once CBDCs are created, a single catastrophic event, such as a terrorist attack, could suddenly create immense pressure to use this system for different security or criminal justice purposes.”
Vitalik Buterin, co-founder of Ethereum, also issued similar warnings, noting that he initially hoped CBDCs could combine cryptocurrency’s transparency, verifiability, and privacy. However, he pointed out that these protections “start to disappear” once CBDC systems are developed.
According to Buterin, “The systems we end up with (referring to CBDCs) are not actually much better than existing payment systems because they essentially become different front ends to existing banking systems, ultimately eroding privacy further and breaking down existing barriers for both corporations and governments.”
These concerns are not surprising. Central bank governors worldwide, including Jerome Powell of the Federal Reserve, Agustín Carstens of the Bank for International Settlements, Christine Lagarde of the European Central Bank, and Andrew Bailey of the Bank of England, have publicly stated multiple times that anonymity and full privacy are impossible with CBDCs.
Given the high risks and minimal benefits, this path may be best left unexplored. CBDCs are not suited to aid finance, it’s too late to improve payment speeds, unlikely to advance monetary policy, and do little to maintain the dollar’s status as the world’s reserve currency. With this in mind, it’s undeniable that governments likely seek to solidify their control over currency in response to the rise of cryptocurrencies.
It’s almost unquestionable that organizations promoting and developing CBDCs are driven by vested interests, and unfortunately, the proposal of “privacy-minded” CBDCs may indeed be a “wolf in sheep’s clothing.”
