ECB tries to dispel privacy concerns over CBDC
Is there still anyone excited about CBDCs other than Central Banks?
Despite many efforts that central bankers deploy to promote the idea of a Central Bank Digital Currency, it just does not take root. Instead, more and more voices rise against it, mostly concerned about a threat a CBDC would pose to people’s privacy.
A currency controlled by a single institution can indeed become a perfect Big Brother tool, gathering colossal amounts of data on citizens’ transactions and controlling their accounts. Of course, that’s what commercial banks do already, but their data is partial, and most often a bank account’s block or seizure would require law enforcement involvement. Centralizing this would bring us closer to a dystopian future where a handful of officials would decide what’s better for the people. The same future that China seems to be creating for itself, and where a digital yuan will play an important role.
Luckily, people in Europe still have a say in this, and so far their opinion on CBDCs is unequivocal: it is a firm NO. The “Digital euro for the EU” public consultation launched by the ECB has so far gathered 14’130 feedbacks, showing the current mood: “undemocratic”, “violation of human rights”, “total surveillance of citizens”, “excessive possibility of abuse”…
Apparently, such a harsh reaction did not discourage the ECB, which decided to try and turn the debate around. Yesterday it released a working paper called “The digital economy, privacy, and CBDC”, which advocates for… privacy, and tries to show how a CBDC could help protecting it. In a clever PR move, the paper authors have picked an enemy that people mistrust more than Centra Banks – tech giants. The rhetoric starts by describing how commercial banks, having access to businesses’ cash flow data, charge them higher loan rates, and goes on to a reflection on how much worse it would be if it were the tech platforms having access to this data. According to them, a solution to this competition-stifling problem would be a CBDC with privacy feature.
The paper does not show how exactly this could be done, but it surely gives plenty of math formulas that are supposed to show how much better would a privacy-enabling CBDC be comparing to the current system of commercial banks and tech platforms with financial services.
Do you feel too that there’s something that the authors might have left out of the paper? Oh yes, the elephant in the room is pretty big, and it is called cryptocurrencies. They protect people’s privacy better than any other digital money solution, while also allowing borderless transfers, self-custody and scarcity (in case of Bitcoin).
It is unlikely that a centrally-controlled money could enable real privacy, the one where it is technically impossible to get hold of an individual’s account or extract specific data on citizens. Until proven otherwise, every mention of “privacy-friendly” CBDCs should be taken with a grain of salt ?
