How real is the CBDC threat to privacy?

Public unease over central bank surveillance is misplaced

There are many possible arguments against the introduction of a central bank digital currency, especially in jurisdictions with sophisticated payments infrastructure employing various public and private payments instruments. CBDCs are often dismissed as a solution in search of a problem. However, the objection that seems to command the greatest volume and emotion is the alleged threat that CBDCs pose to the privacy and indeed liberty of the citizen.

The UK House of Lords Committee, in a largely sceptical report on the desirability of a sterling CBDC, raised the spectre of a digital currency as ‘an instrument of state surveillance’. A survey of European consumers conducted by the Bank for International Settlements identified public concern about unspecified threats to privacy posed by CDBC, and a European Union consultation paper on a digital euro has explicitly cited the issue.

Research conducted by the private sector, including several OMFIF members, frequently points to the unease of citizens in many countries about the threat to liberty posed by a central bank monitoring their transactions in real time. How real is this eventuality and does it really matter?

If we assume that a CBDC will be a digital representation of a fiat currency backed by a central bank, issued to citizens and small businesses via accounts held and managed by private sector institutions and limited in scale, we see something that closely resembles the existing management of private money current (checking) accounts operated by the banking system.

Currently, if you have a bank account, in theory the provider can monitor your transaction activity on a real-time basis. In most countries there is a legal process which permits public authorities access to that information if due cause can be shown. There is a comprehensive and systematic framework of legal and regulatory measures balancing individual rights of privacy and the authorities’ legitimate needs for transparency. It is unlikely that the framework accompanying CBDCs would be much different. In other words, it is hardly the advent of an Orwellian regime.

It is undoubtedly true that, in countries with a more restrictive view of citizens’ rights to privacy, similarly intrusive standards will be applied to CBDCs. But that is an intrinsic feature of the political system rather than the CBDC. Similarly, in countries that once routinely abused the collection and use of data on citizens for the purposes of state control, there are concerns that CBDCs might be the precursor to unwelcome public intrusion into private affairs. In many of those states citizens now have the right to eject unwelcome governments via the ballot box.

In truth, citizens in many countries willingly surrender vast amounts of personal data to private sector suppliers of financial services, consumer goods of all descriptions, social media and romantic liaisons among other essentials. In the UK, there are currently 5.2m CCTV cameras, or one for every 13 citizens.

Next to such massive and pervasive intrusions into our private and public spaces for which we have largely volunteered in pursuit of economic utility or public security, the putative threat posed by a CBDC is marginal indeed. There may be valid reasons why a CBDC is not a good idea for a country, but the potential creation of a state-controlled panopticon is probably not one of them.

Phil Middleton is Chairman of OMFIF’s Digital Monetary Institute.

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