CBDC Could Spell Doom for Financial Privacy and Free Markets

CBDC Could Spell Doom for Financial Privacy and Free Markets

The CATO Institute has released a policy analysis document warning that the central bank digital currency (CBDC) could spell doom for financial privacy of the citizens and free markets. The document mentions that it could turn out to be the "single largest assault on financial privacy since the creation of the Bank Secrecy Act." The document further seeks immediate intervention from the US Congress. The US Congress "should explicitly prohibit" its issuance to stop the US Federal Reserve and Treasury from threatening the financial system with the CBDC, it concludes.

Threat to the Citizen’s Right to Privacy

A policy analysis document released on April 4 by the CATO Institute warns that a central bank digital currency could be detrimental to the American people. The analysis document points to two-thirds of the 2,052 comment letters sent to the US Federal Reserve that oppose plans to launch a CBDC.

The policy analysis document that is authored by Nicholas Anthony and Norbert Michel lists some of the concerns about CBDCs that have been raised and the associated risks that make the CBDC unsuitable for Americans. As seen in the document, one key concern raised by CBDC opponents is the threat it poses to Americans’ right to financial privacy.

"Laws designed to counter-terrorism, deter money laundering, and collect taxes largely provide the government with the ability to conduct unchecked surveillance over financial information. CBDC could spell doom for what little protection remains because it would give the federal government complete visibility into every financial transaction by establishing a direct link between the government and each citizen’s financial activity," the analysis document has stated.

While attaining this feat is something the US government may want to do, the authors assert that the issuance of the CBDC would amount to what they call the "single largest assault on financial privacy since the creation of the Bank Secrecy Act and the establishment of the third-party doctrine."

Threat to Free Markets and Platforms for Cyber Criminals

Anthony and Michel have claimed that the CBDC is likely to be a threat to financial freedom as well, besides being a threat to citizens’ right to privacy as guaranteed by the US Constitution. They explain:

"A CBDC would provide countless opportunities for the government to control citizens’ financial transactions. Such control could be preemptive (prohibiting and limiting purchases), behavioral (spurring and curbing purchases), or punitive (freezing and seizing funds)."

The policy document has also suggested that a CBDC will pose a threat to free markets and will give cybercriminals "a prominent platform on which to focus their efforts."

The two authors have recommended that the US Congress "should explicitly prohibit" the US Treasury and central bank from issuing digital currency to prevent creating risks. The amendment to Section 13 of the Federal Reserve Act will limit the US "Treasury’s authority to expand existing offerings."

The authors have also recommended that the US Congress "require that the Fed’s compliance with the Depository Institutions Deregulation and Monetary Control Act’s cost recovery provisions be subject to regular audits by third parties."

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