CBDC a Potential Risk to Financial Privacy – Analysis

A central bank digital currency (CBDC) may be a risk to financial privacy, a policy analysis document released by CATO Institute has revealed. To prevent the U.S. Federal Reserve and Treasury from launching a CBDC, the authors suggest that the U.S. Congress should explicitly prohibit its issuance.

CBDC a Threat to Financial Privacy

A policy analysis document released on April 4 by the CATO Institute warns that a central bank digital currency could be detrimental to the American people. The analysis document cites the two-thirds of the 2,052 comment letters sent to the U.S. Federal Reserve that oppose plans to launch a CBDC.

Authored by Nicholas Anthony and Norbert Michel, the policy analysis document also lists some of the concerns about CBDCs that have been raised and how the associated risks make the CBDC unsuitable for Americans. Among the key concerns raised by CBDC opponents is the threat this poses to Americans’ right to financial privacy.

“Laws designed to counter-terrorism, deter money laundering, and collect taxes largely provide the government with the ability to conduct unchecked surveillance over financial information. A CBDC would give the federal government complete visibility into every financial transaction by establishing a direct link between the government and each citizen’s financial activity,” the analysis document stated.

The authors of the document further argued that the issuance of the CBDC would amount to what they call the “single largest assault to financial privacy since the creation of the Bank Secrecy Act and the establishment of the third-party doctrine.”

US Congressional Intervention Needed

Apart from being a threat to citizens’ right to privacy as guaranteed by the U.S. constitution, Anthony and Michel also noted that a CBDC is likely to be a threat to financial freedom as well. They said:

A CBDC would provide countless opportunities for the government to control citizens’ financial transactions. Such control could be preemptive (prohibiting and limiting purchases), behavioural (spurring and curbing purchases), or punitive (freezing and seizing funds).

The policy document also suggested that a CBDC will pose a threat to free markets and will give cybercriminals “a prominent platform on which to focus their efforts.”

To prevent the U.S. Federal Reserve from creating these risks, the two authors recommend that the U.S. Congress “should explicitly prohibit” the U.S. Treasury and central bank from issuing digital currency in any form. This can be done by amending Section 13 of the Federal Reserve Act and by limiting the U.S. “Treasury’s authority to expand existing offerings.”

The authors also recommend that the U.S. Congress must “require that the Fed’s compliance with the Depository Institutions Deregulation and Monetary Control Act’s cost recovery provisions be subject to regular audits by third parties.”

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Terence Zimwara

Terence Zimwara is a Zimbabwe award-winning journalist, author and writer. He has written extensively about the economic troubles of some African countries as well as how digital currencies can provide Africans with an escape route.