CBDCs are “a disaster for privacy”: The Government Must Listen To Warnings From Around The World And Rethink The Digital Pound — Big Brother Watch (2024)

FAQs

CBDCs are “a disaster for privacy”: The Government Must Listen To Warnings From Around The World And Rethink The Digital Pound — Big Brother Watch? ›

“Our extensive research shows that wherever they have been piloted, Central Bank Digital Currencies have been a disaster for privacy. CBDC projects around the world have painted a consistent picture of low uptake and poor outcomes, paired with real threats to human rights and civil liberties.

CBDCs may not necessarily pose a serious risk if they are created with privacy protections in mind. For instance, CBDC transactions may offer a level of privacy comparable to cash transactions if they are intended to be pseudonymous, which means they conceal the identities of the parties to the transaction.

Credit cards and debit cards have legal protections if something goes wrong. For example, if you need to dispute a purchase, your credit card company has a process to help you get your money back. Cryptocurrencies typically do not come with any such protections. Cryptocurrency payments typically are not reversible.

In the U.S. alone, 6% of adults had no bank account in 2023.2 In many other countries, the numbers are much higher. With that in mind, the main purposes of CBDCs are: To provide businesses and consumers conducting financial transactions with privacy, transferability, convenience, accessibility, and financial security.

Legal and supervision risk Legal gaps exist in many countries regarding the issuance, use, circulation, and supervision of CBDCs. Monitoring and supervising CBDCs pose challenges different from traditional currency due to their digital nature, making security issues and system failures more severe.

A UK House of Lords economic affairs committee report concluded that a CBDC poses two main security risks: first, that individual accounts could be compromised through cybersecurity weaknesses; and, second, that a centralised CBDC ledger could be a target for attack from “hostile state and non-state actors”.

Possibility of breaching user privacy and creating a surveillance state: Depending on the design of the CBDC system, there is a risk that user privacy could be compromised or that the system could be used for surveillance purposes.

2. Financial System Vulnerability: The integration of CBDCs into the financial system may expose it to cyber threats and vulnerabilities. A successful cyberattack could have far-reaching consequences, affecting the stability of the entire monetary system.

But a CBDC is always a liability of the Federal Reserve, America's central bank (that's where the CB comes from). That means the Fed has the responsibility to do with it what ever is required. In other words, whenever you use a dollar of CBDC, there's a direct connection between you and the Fed. Not a good idea.

2. Will a U.S. CBDC replace cash or paper currency? The Federal Reserve is committed to ensuring the continued safety and availability of cash and is considering a CBDC as a means to expand safe payment options, not to reduce or replace them.

Will CBDC control us? ›

“As Americans face the prospect of an increasingly weaponized government, ensuring financial privacy is pivotal. A CBDC would open the door for the federal government to surveil and control the spending habits of all Americans.

Governments that introduce a CBDC enable a war on cash and cryptocurrency. Cryptocurrencies are virtual currencies and individual monetary units, convertible into fiat currency at a variable rate determined by supply and demand, but their use and value are not monitored or guaranteed by any agency.

A central bank digital currency (CBDC; also called digital fiat currency or digital base money) is a digital currency issued by a central bank, rather than by a commercial bank. It is also a liability of the central bank and denominated in the sovereign currency, as is the case with physical banknotes and coins.

CBDC has special aspects that may benefit financial inclusion, such as being a risk-free and widely acceptable form of digital money, availability for offline payments, and potentially lower costs and greater accessibility.

The ABA estimates that even with a CBDC framework that caps deposit accounts at $5,000 per customer, or “end user”, would result in $720 billion in deposits leaving the banking system. That would severely impact banks as drivers of the economy.

Inclusivity a key benefit of CBDCs

CBDCs could also vastly improve payments infrastructure, reduce costs, improve the security and transparency of transactions, and help mitigate risks such as counterfeiting and money laundering.

However, a CBDC also entails noteworthy risks, including the possibility of bank disintermediation and associated contraction in bank credit, as well as potential adverse effects on financial stability.

They enable all this while also maintaining the stability and trust associated with traditional currencies. Designed with advanced security features, encryption, and privacy controls, CBDCs secure digital transactions.

The public nature of blockchains can make sensitive information vulnerable. To counter these privacy challenges, cutting-edge cryptographic techniques like zero-knowledge proofs (ZKPs) and confidential transactions are increasingly employed.

“The basic principle is that CBDC can have the same degree of anonymity as cash, no more and no less,” he added.