CBDCs should safeguard privacy rather than be used for surveillance: Ex-CFTC chair
Anti-money laundering and Know Your Customer regulations, according to former CFTC Chair Christopher Giancarlo, are out-of-date and legally dubious, and crypto technology might do better.
The United States should lead the development of central bank digital currencies (CBDCs) away from becoming "surveillance coins" and towards being "freedom coins," argues the former head of the Commodities Futures Trading Commission.
Christopher Giancarlo wrote in an opinion piece published in The Hill on March 13 that the United States "must influence" CBDC development in order to defend "democratic values like freedom of speech and the right to privacy" by utilizing the technology already present in some cryptocurrency protocols.
Giancarlo, who goes by the name "Crypto Dad" because to his pro-crypto stance, is a co-founder of the Digital Dollar Project, which examines the effects of a U.S. CBDC. In a study he co-authored with API fellow Jim Harper on March 1 for policy think tank the American Enterprise Institute, he expanded on his privacy worries.
He asserted that the United States must promote a "freedom coin"—a CBDC that ensures a high degree of privacy. In their research, Giancarlo and Harper stated that CBDCs provide a chance to "reassess modern financial monitoring operations" and may even strengthen constitutional rights.
To achieve this, a CBDC could take advantage of crypto technology, such as:
“zero-knowledge proofs, homomorphic encryption, and multiparty computation, that enable parties to prove an encrypted proposition is true without revealing the underlying information," they said.
The authors claimed that these technologies will enable "intelligent enforcement" of crime prevention. The United States would need to review its present financial monitoring regulations first. The writers especially criticized a paper that was just released by Joe Biden's administration:
“The White House Office of Science and Technology Policy’s (OSTP) recent Technical Evaluation for a U.S. Central Bank Digital Currency System shows that financial surveillance in the West is more like China’s than many would like to admit.”
The OSTP document demonstrated a "refusal to advance beyond the present constitutionally dubious financial monitoring apparatus," they claimed. Giancarlo and Harper criticised the OSTP's proposed Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations for allowing excessive monitoring without a warrant.
They stated that there is a risk of CBDC being utilised as it is in China if its privacy is not secured. There, e-yuan "would allow The authorities to link political conformity to individual success and condemn political dissidents to poverty" by making all transactions transparent to People's Bank of China, they said. The issues raised by U.S. Senator Tom Emmer, a staunch opponent of the U.S. CBDC who sponsored the CBDC Anti-Surveillance Act in 2022, are quite similar to those of the writers.
Emmer has voiced worry about a CBDC that may be configured "to choke out politically unpalatable behaviour" and "tracks transaction level data down to the individual user." Emmer is a co-chair of the House Blockchain Caucus in the United States.
This latest update on CBDC will also positively affect crypto regulation.
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