From aier.org
When it comes to designing digital currencies that protect the identity and transactions data of their users, developers have made a lot of progress in a relatively short period of time. It is technically feasible to design a retail central bank digital currency — or, CBDC — that promotes financial privacy. But one must also consider what is politically feasible. Unfortunately, there is little prospect that the United States government would actually adopt a privacy-protecting CBDC.
If adopted, a CBDC will eventually — if not initially — be used to surveil the transactions of Americans.
The government is already using existing technologies to surveil its citizens. There’s no reason to think the government would give up its ability to monitor transactions with the introduction of a CBDC. Indeed, it seems much more likely that the government would seize the opportunity to expand its capabilities. Therefore, it is absolutely crucial to maintain a private banking system firewall between the government and our transactions data.
Let’s start with the status quo. The government has essentially deputized the private banking system to monitor customer transactions. Banks keep records on customer transactions, which the government can access by subpoena. The government also requires banks to report suspicious activity and currency transactions in excess of $10,000.
As Nick Anthony at Cato has shown, the real (inflation-adjusted) reporting thresholds have gradually declined over time. When the Bank Secrecy Act rules were rolled out in 1972, banks were required to report currency transactions worth $10,000 or more. If that reporting threshold had been indexed to inflation, it would be around $74,000 today. Since it wasn’t indexed to inflation, banks must file many more reports today on transactions worth much less than those that would have triggered a reporting requirement in the past.
Other thresholds are even lower. For example, money-service businesses must obtain and record information for transactions worth just $3,000.
The government vigorously defends its ability to monitor transactions. It prosecutes those making transactions just below reporting thresholds —a separate crime called structuring. It seizes cash and collectibles, which make it more difficult to monitor transactions, even in cases where there is no evidence of criminal activity. And it undermines new financial privacy-protecting technologies. Consider the government’s response to cryptocurrencies, some of which offer a high degree of financial privacy. The Financial Crimes Enforcement Network requires cryptocurrency exchanges to register as money-service businesses and comply with Know Your Customer requirements. If transactions can ultimately be traced through the blockchain to these on- and off-ramps, then the financial privacy that cryptocurrencies offer is largely eroded.
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