CBDCs should protect privacy, not be a surveillance tool: Former CFTC head

The US should lead the development of central bank digital currencies (CBDCs) away from being “surveillance coins” and towards being “freedom coins”, says the former head of the Commodity Futures Trading Commission (CFTC).

In an article in The Hill on March 13, Christopher Giancarlo, nicknamed “Crypto Dad” for his pro-crypto views, said the US “must influence” CBDC development to protect “democratic values ​​such as freedom of expression and the right to privacy”. ,” leverages current technology used by some cryptocurrency protocols.

Giancarlo, co-founder of the Digital Dollar Project which focuses on researching the implications of a US CBDC, elaborated on the privacy concerns in a March 1 report he co-authored for the policy think tank, the American Enterprise Institute (API). with API Fellow Jim Harper.

He said the US needs to push for a “freedom coin” – a CBDC that guarantees a high level of privacy.

Giancarlo and Harper argued in the paper that CBDCs offer an opportunity “to rethink modern financial surveillance activities” and could potentially improve constitutional protections.

To achieve this, a CBDC could take advantage of crypto-technology, such as “zero-knowledge proof, homomorphic encryption and multi-party computation, which enable parties to prove that an encrypted proposition is true without revealing the underlying information,” they said.

These technologies would make “intelligent enforcement” of crime prevention possible, the authors argued.

First, the United States must reconsider current financial surveillance policies. The authors took specific issue with a recent document published by the administration of US President Joe Biden:

“The White House Office of Science and Technology Policy’s (OSTP) recent technical evaluation for a digital currency system by the US Federal Reserve shows that financial surveillance in the West is more similar to China’s than many would like to admit.”

The OSTP paper showed an “unwillingness to evolve beyond the current constitutionally suspect financial surveillance system,” they said.

Giancarlo and Harper singled out the anti-money laundering (AML) and Know Your Customer (KYC) measures as problematic, saying they allowed too much surveillance without probable cause.

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If a CBDC’s privacy is not guaranteed, there is a risk that it will be used as it is in China, they argued.

There, the e-yuan will “allow the Chinese government to link political compliance with individual prosperity and relegate political dissidents to poverty” by making all transactions visible to the People’s Bank of China, they said.

The authors’ thoughts have much in common with concerns expressed by US Senator Tom Emmer, a vocal opponent of a US CBDC who introduced the CBDC Anti-Surveillance Act of 2022.

Emmer has expressed concern about a CBDC that “tracks transaction-level data down to the individual user” and can be programmed “to shut out politically unpopular activity.” Emmer is also co-chair of the US Congressional Blockchain Caucus.