Exploring the Privacy Concerns Around CBDCs

CryptoNews.com

2024-01-23 02:50:49

Tanzeel Akhtar

Last updated:

January 23, 2024 05:49 EST | 2 min read

Source: PixabayThe future of money is digital and many countries are developing their own Central Bank Digital Currencies (CBDC). This in turn will have far-reaching implications on society, businesses, and banks, as the use of physical cash declines.

Retail CBDCs are government-backed digital fiat money which is regulated by the country’s central bank and seen as an alternative to crypto. But when it comes down to introducing CBDCs, there are concerns about data protection and security.

To use CBDCs individuals will have to part with personal information and this is where it gets sticky. Many individuals do not want their everyday transactions monitored. Let alone give the government access to this data which in turn could be used to control consumer behaviour on a mass scale.

Over the years Governments have pushed to develop CBDCs almost in response to crypto. Regulators and governments are wary of crypto due to the lack of transparency around the eco.

Crypto remains volatile so is unlikely to be considered a currency despite El Salvador becoming the first country to make bitcoin legal tender in September 2021. We have yet to see if El Salvador’s Bitcoin bet pays off.

Donald Trump on CBDCs

Most recently former US President Donald Trump grabbed headlines speaking in Portsmouth, New Hampshire. He defined CBDCs as a “dangerous threat to freedom.” Pro-crypto former presidential candidate Vivek Ramaswamy, who recently dropped out of his campaign, was also present on stage, officially endorsing Trump.Trump has been dismissive about the value of cryptos and central bank digital currencies (CBDCs) in the past.

The 2024 Republican frontrunner has once again promised against the creation of a CBDC “to protect Americans from government tyranny.”But would introducing CBDCs solve any issues? Is there a way around privacy and security concerns? The Bank for International Settlements (BIS) claims there is and released a report in November 2023 on “Project Tourbillon” which explores privacy and security.

The BIS claims its findings through Project Tourbillon introduce a new privacy paradigm that balances user needs and public policy objectives: payer anonymity. For example, if a consumer pays a merchant using CBDCs and does not disclose personal information to anyone, including the merchant, banks and the central bank. So if the identity of the merchant is disclosed to the merchant’s bank (as part of the payment) but is kept confidential there. The central bank does not see any personal payment data.

Is China Ahead of the Curve?

Over the years many countries have been developing their own CBDCs almost in stealth mode. China’s e-CNY pilot has been distributed and used widely. For example from February to March 2022, e-CNY was piloted in the Beijing Winter Olympics venues.

In December, Singapore’s regulatory body the Monetary Authority of Singapore (MAS) said it plans to begin piloting the e-CNY in collaboration with China to encourage tourism spending. The two countries first signed a Memorandum of Understanding to work together back in 2020. No timeline was given for when the digital currency would be trialled.

Sweden’s e-krona CBDC – which will be issued by Sweden’s central bank, Riksbank, has put in place privacy architecture for its pilot. Sweden has been moving toward becoming a cashless society.

The Bahamas, Jamaica, and Nigeria have already introduced CBDCs. And more than 100 countries are in the exploration stage. Central bankers in Brazil, China, the euro area, India, and the UK are at the forefront, according to an International Monetary Fund (IMF) report.

This page may contain third-party content, which is provided for information purposes only (not representations/warranties) and should not be considered as an endorsement of its views by Gate, nor as financial or professional advice. See Disclaimer for details.