As efforts continue to make virtual payments as easy as handing over a $20 bill, the future of the US dollar may hinge on preserving privacy while tracking transactions.
As the U.S. government weighs whether to launch a central bank-backed cryptocurrency, civil liberties advocates and libertarians push for a digital dollar that will protect against surveillance and offer anonymity similar to cash. doing.
Interest in the digital dollar is driven in part by the emergence of alternatives such as cryptocurrencies and the shift to cashless transactions due to the coronavirus pandemic. Paving the way for central bank digital currencies in the US will require an extensive plan to persuade skeptics, work out technical details, and implement policy goals such as promoting economic growth and stability. is.
The privacy provided by digital dollars depends on design decisions such as how transactions are recorded, how users’ identities are verified, and how virtual wallets work. Such details determine how closely illegal financial transactions can be monitored by law enforcement agencies or by private companies interested in consumer purchasing habits.
“It’s all about design,” said Mark Young, a former U.S. intelligence officer who is now chief risk officer at blockchain software technology firm ConsenSys. Young is an advisor to the Digital Dollar Project, a group studying the challenges and opportunities associated with central bank digital currencies.
The United States is one of about 100 countries and monetary unions exploring the potential use of central bank-issued virtual currencies that are not printed or minted like traditional money. tracker From the Atlantic Council. Skeptics have dubbed China’s digital yuan rollout a “surveillance coin” because it could allow the government to more easily monitor transactions.
Fear of surveillance has inspired Republican policymakers, including House Majority Whip
Democratic party led Specification that member of parliament.
The legislative proposal represents opposing visions of what a digital dollar means for Americans’ economic freedom.
digital possibilities
Treasury and Federal Reserve officials are still not convinced the US needs a central bank digital currency. Effort Research its possibilities.
For example, Federal Reserve Board member Christopher Waller said: was suggested There are other ways to improve the current US payment system without introducing a new kind of currency.
Issuing a digital dollar is seen by proponents as a way to preserve U.S. financial leadership globally while making transactions easier, more efficient and more inclusive.
The increasing digitization of finance with credit cards and payment apps means that more cash will be lost to immigrants, low-wage workers, and rural residents who may be unbanked or lack trust in the current financial system. Communities that depend on may be left behind.
Privacy concerns are one of the top reasons ‘unbanked’ households cite for not having a bank account, according to a 2019 survey. investigation By Federal Deposit Insurance Corporation.
The sought-after digital dollar should behave like cash. Jay StanleySenior Policy Analyst for the Speech, Privacy, and Technology Project of the American Civil Liberties Union, a non-profit organization.
“The gold standard is cash, with no middlemen and little oversight,” Stanley said.
illegal finance
Digital transactions today are not very private due to federal regulations aimed at combating money laundering, terrorism financing, and other criminal activities. The Bank Secrecy Act requires US financial institutions to assist law enforcement by monitoring suspicious activity and reporting cash transactions over $10,000.
Maintaining such a regime of surveillance in a digital dollar system can force privacy trade-offs.
“The more privacy we protect, the less efficient governments are in performing their regulatory functions,” said Greg Guedel, chief legal officer at Fluent Finance Inc., a financial technology infrastructure company. now. “
Opponents of the digital dollar fear that financial oversight will grow and be embedded in money, according to Jim Harper, a non-resident senior fellow at the American Enterprise Institute. With J. Christopher Giancarlo, former chairman of the Society, advocated For a “coin of freedom” that is not subject to excessive tracking or surveillance.
One way to reconcile privacy and illicit financial concerns may be to layer reporting requirements so that data on small transactions and accounts is not collected, Undersecretary of Finance Nellie Liang said in March. said on the 1st. speech.
Limiting the volume or number of transactions could make a retail central bank digital currency “less useful to end users,” Liang said, possibly using technology to reduce such tradeoffs. Finding a way is progress.
Innovation
Technological innovations could help protect the privacy of digital dollar users while preventing the currency from being used by bad actors.The White House Office of Science and Technology Policy sought We provide feedback on such technology to inform research and development of digital assets.
“It is an oversimplification to say that digital dollar transactions are not as anonymous as physical cash transactions,” he said. David TreatHe is a senior managing director at consulting firm Accenture and a member of the Board of Directors of the Digital Dollar Project.
Privacy-preserving cryptocurrencies such as Zcash use what are called zero-knowledge proofs to ensure that each transaction is valid while hiding the details.
The Massachusetts Institute of Technology and the Federal Reserve Bank of Boston have built a virtual central bank digital currency in a collaborative effort called Project Hamilton.project Indicated Ability to process transactions without requiring centralized storage of user balances or identities.
personal consumption
Aside from government oversight of the financial system, digital rights advocates are concerned about the private sector’s ability to track and share consumer financial data.
Current payment systems are designed to allow data brokers to collect, aggregate, and sell consumer data, including credit and debit card transactions. I have written In response to the White House Office of Policy’s research efforts on digital assets.
According to EPIC, brokers can use transaction data to build detailed profiles of individuals, revealing personal information such as political views, religious beliefs, reproductive and family choices, and personal preferences and habits. can.
Leah Holland, campaign and communications director for digital rights nonprofit Fight for the Future, echoed concerns that companies could spy on how people spend their money and censor certain activities. For example, sex he closes a worker’s bank account.
Fight for the Future is calling on US lawmakers to prioritize digital currency privacy protections.
“There’s not much difference between corporate surveillance and government surveillance,” says Holland.
