A monetary paradox abounds in the world’s wealthiest nations: the most money is spent, while it seems that day by day fewer people carry bills and coins in their wallets. The opposite paradox exists in the global south, where most people don’t even have a bank account so instead rely on cash. That’s why central banks around the world are researching the possibility of establishing a public financial infrastructure based on digital currencies. But will this mean that Big Brother will be able to cut the power when the bill isn’t paid?
That is the concern raised in an article by Dutch investigative news site Follow The Money (FTM), where the development of Central Bank Digital Currencies (CBDC) is laid out. This is as yet a relatively unknown concept, so public debate on this cental bank-issued digital currency is still rather quiet.
While the use-case of CBDC is compelling because it will decrease the financial dependence of people around the world on commercial banking services, there are important privacy safeguards required to prevent possible misuse by the government.
In the FTM article, expert on financial innovation Simon Lelieveldt says that the thought that CBDC should be smart and be coupled to an identity is erroneous. He finds that the way forward should be a public digital currency that is as dumb and analog as normal cash. Lelieveldt finds that all the ideas about traceability, monitoring, and authentication of identity should not be integrated into CBDC.
I agree with Lelieveldt. Blockchain technology and AI combined and used as a very smart version of money, could be wielded into a perfect tool for controlling citizens. It will be an unavoidable success with every non-democratic government across the globe. It might even be a threat for democracy, given that democratically elected leaders might be tempted to use that technology to wield yet unseen powers over their constituencies.
Gaelle le Gars, who worked at the European Commission for 10 years, concurs, saying that these functionalities could mean that a government could be politically inclined to use the technology. In a rather benign way for example, by making it impossible for alcoholics to buy alcohol with CBDC. This of course could have farther-reaching consequences. The possibilities for state control are endless.
Which is why, to prevent all of this, digital cash should be very dumb and as anonymous as possible. I believe this could be done if the digital cash technical architecture is built in conformity with privacy by design principles. Which is, by the way, already the applicable law. Which brings me to the GDPR.
It seems that the European Central Bank, similarly to the European Commission would be well served by being reminded about legislation that already exists. The GDPR should always be taken into consideration when making new legislation or policy. Because these CBDCs in Europe are still being developed, it’s important to think about how GDPR rights such as the right to be forgotten or the right not to be subject to a decision solely based on automated processing relates to the CBDCs.
I am fully behind digital cash. But I am totally opposed if it were to emerge as anything smarter than a wrinkled 10 euro bill.
In collaboration with Luis Hernandez.