DON'T MAKE CASH THAT SPIES ON US

President Biden’s March 2022 Executive Order introduced a possible CBDC as a way to further the US’ interests in:

• reducing the risks that digital assets pose
• responsible financial innovation
• expanding access to safe and affordable financial services
• reducing the cost of domestic and cross-border funds transfers and payments
• continued modernization of public payment systems.

But there are differing philosophies on what a US CBDC would look like.

Recently, Federal Reserve Chair Jerome Powell outlined four qualities that a hypothetical digital currency in the U.S. must have, stating that it needs to:

• ensure user privacy
• be identity verifiable - this is similar to the way bank accounts are identifiable to prevent money laundering but would mean that it couldn’t be anonymous
• be intermediated or widely embraced by the current banking system
• serve as a widely accepted means of payment.

Earlier, in March 2021, the Electronic Currency And Secure Hardware (ECASH) Act was introduced to direct the Treasury, not the Federal Reserve, to develop and issue a digital version of the US dollar. This e-cash is intended to “replicate and preserve the privacy, anonymity-respecting, and minimal transactional data-generating properties of physical currency instruments such as coins and notes to the greatest extent technically and practically possible,” without requiring a bank account.

There are some possible benefits to CBDCs: 

• It could ensure financial access for unbanked and underbanked people.
• It could make it easier to distribute public benefits and improve public payment systems. 
• It could also help remove intermediaries like Visa, PayPal, and big banks, which could increase privacy for everyday people, reduce risks and transaction costs, be more efficient, and be less discriminatory and exploitative.

There are also glaring concerns for privacy and security:

• It could create a government record of every financial transaction using the CBDC currency, no matter how small—allowing the government to identify users and track transactions with a new and wholly inappropriate level of ease.
• It could worsen accessibility issues for economically disadvantaged people, less-digitally literate people, and people without Internet access if not properly implemented. 
• Without the right infrastructure and design in place, it would involve intermediaries similar to the existing system

The question “how?” might have been repeatedly coming up as you read through this. It’s one we have as well. This is a developing area - a lot is still getting figured out. We are keeping our ears to the ground and you should too! However this is done technically, these are the essentials:

• CBDCs must be surveillance free, accessible, inclusive, and permissionless. They cannot be a surveillance instrument to be easily manipulated by governments or bad actors. We don’t want a government-run currency that creates a government record every time it is used.
• Effective data privacy legislation must be put in place. We should not even consider a new financial system that might give away even more data without having any sort of baseline regulation for data privacy in the U.S.
• At every step, this process must center and be led in part by stakeholders from communities that have been traditionally marginalized by existing financial systems, over-surveilled, and censored. CBDCs by design must work as an active force to counter existing inequalities, not exacerbate them.
• There must be clear, specific, and future-proof safeguards in place to protect privacy, civil liberties, anonymity, and free expression. Such features should, to the greatest extent possible, be built into the technology used, rather than be protected merely by policy.
• The government needs a measured response backed by studies, stakeholder feedback and  independent audits.