Privacy Risks of CBDCs Spark U.S. State-Level Bans
U.S. states push back against CBDC creep at home and abroad
As central banks around the world explore issuing their own digital currencies (a/k/a Central Bank Digital Currencies, or “CBDCs”), concerns continue to grow over the potential privacy implications. Critics argue that CBDCs could enable unprecedented surveillance of citizens' financial transactions and personal data by governments. In response, a handful of U.S. states have moved to ban or restrict CBDCs within their borders to protect privacy rights.
In this post we’ll provide a brief overview of CBDCs for beginners, discuss the privacy risks, and provide an update on the deployment of CBDCs in the U.S. and abroad.
Welcome to another issue of Secrets of Privacy where we discuss personal privacy related topics and provide practical tips to immediately shield your personal privacy.
If you’re reading this but haven’t yet signed up, join the growing Secrets of Privacy community for free and get our newsletter delivered to your inbox by subscribing here 👇
Understanding CBDCs: A Primer for Novices
Central Bank Digital Currencies (CBDCs) are a form of digital currency issued by a country's central bank. Unlike cryptocurrencies like Bitcoin, which are decentralized and operate independently of any central authority, CBDCs are centralized and tied to the value of the country's fiat currency.
CBDCs function similarly to traditional money but exist in a digital format. They can be used for transactions, stored in digital wallets, and are expected to eventually be accessible via smartphones and other digital devices. A central bank manages and regulates the CBDC, including the stability and security of the digital asset.
CBDCs sound promising on paper, emphasizing things like “efficiency” and “speed” that will appeal to the general population. But there are significant privacy and security risks, as we’ll see below.
Removing your personal information from Google and data broker sites is critical to protecting your privacy from Bad Actors and AI scams. Start removing your personal information today. Set up an account, pay a monthly/annual fee and forget about it - super easy, and an enormous time saver. Get started right away with DeleteMe here or PrivacyBee here (affiliate links). For a deeper dive on the topic, check out our prior post here.
Privacy and Security Pitfalls of CBDCs
The core privacy issue with CBDCs stems from their centralized nature and digital trail. Unlike physical cash which can change hands anonymously, CBDC transactions would be recorded on a central ledger viewable by the issuing central bank. This raises fears that governments could abuse such transparency to monitor citizens' income, spending habits, and financial networks.
CBDCs could make it easier to implement controversial tools like transaction censorship, account freezing, expiration dates on digital cash, and even programmable money that dictates what it can be spent on. There are also concerns about the cyber risks of storing so much sensitive financial data in one place. Those records are a huge target for Bad Actors, including hostile state actors. A successful cyber attack on a CBDC infrastructure could have catastrophic implications for a country's economy and individual privacy.
Proponents argue that CBDCs could have privacy protections like anonymity layers. In reality, it’s unlikely that governments would willingly cede that level of control and visibility. There would always be a back door. The only question is who has access?
U.S. States Take Preemptive Action
Citing these privacy risks, a few U.S. states have recently passed laws prohibiting CBDCs from being used as legal money within their jurisdictions. Other states are considering similar action. The legality of these laws is questionable and there’s no imminent threat of a federal CBDC. So for the time being, these are primarily symbolic moves. But here’s a brief summary as of June 2024.
Keep reading with a 7-day free trial
Subscribe to Secrets of Privacy to keep reading this post and get 7 days of free access to the full post archives.