CBDCs, Opinion

Can CBDCs be made safe for democracy?

By J. Christopher Giancarlo
Image: Getty Images

The world today is moving headlong into a new wave of digitalisation with profound changes in the ownership and transfer of things of value. How do we make sure we better society without compromising people’s privacy?

This new wave brings the promise of greater financial access, inclusion, efficiency and resilience. Yet, it also brings the risk of centralised surveillance, censorship and control. 

Today, the choice is in the balance.

In this new wave, indicia of ownership – who owns what and who is transferring what to whom – will be recorded increasingly on global digital networks governed by unique new crypto digital protocols rather than on the isolated balance sheets of individual commercial and government institutions.

There is no turning back. Some 134 countries and currency unions, representing 98 per cent of global GDP, are now exploring central bank digital currencies.  

Of these, 68 countries are now in an advanced phase of exploration, development, pilot, or launch. That includes 19 of the G20, with China placing its digital yuan – the eCNY – in over 260mn digital wallets and the European Union planning to roll out a digital euro. 

At the same time, stablecoins, a cryptocurrency with its value pegged to commodities or reserve currencies such as the US dollar, settled over $11tn transactions in 2022. This almost surpasses the payment volume of Visa over the same period. 

Put another way, stablecoin supply has grown from less than $3bn five years ago to more than $138bn as of January 2023.

Likewise, decentralised cryptocurrencies such as bitcoin and Ethereum continue to grow in notional value, computing power and distributed ownership. 

Another bitcoin bull run?

Despite random government attempts at suppression, spectacular price crashes and flamboyant fraud, bitcoin recently surpassed the Swiss franc as the world’s 13th largest currency.

Thus, it is clear that CBDCs, stablecoins and crypto will proliferate in the decades to come. 

The sometime fashionable debate choosing between CBDCs, stablecoins and crypto is a false one. The future is all of the above, a coming kaleidoscope of overlapping and partially interoperable, digital networks of value: some decentralised like bitcoin and others variously centralised and operated by global banks and bigtech companies.  

And still others will be deployed by national governments and, even, exported for sale as “CBDCs in a box” for the developing world.

Anticipating this trend, the Digital Dollar Project was launched four years ago. 

The project, of which I am chair and co-founder, operates a neutral, non-profit forum to consider how to modernise the US dollar while preserving its reserve currency status and the values it represents in a coming world of digital currency networks. 

From conducting pilot projects to hosting privacy roundtables at leading universities, to publishing a series of risk and privacy working papers, the project brings together the public and private sectors to consider global standards for CBDC privacy, risk, security, cross-border payments and interoperability.  

The Digital Dollar Project decidedly does not call for deployment of a US CBDC at least until key design elements of privacy, security, distribution, and economic stability are properly understood and democratically addressed. It does, however, urge the US to assert principled leadership in CBDC experimentation at home and digital currency standard setting abroad.  

Big data + bigtech = big problem

And here’s the concern: Those centralised digital currencies that are emerging – both sovereign and non-sovereign – will be gathering points for massive amounts of data about the economic and financial activities of users, citizens and voters. 

Many across the political spectrum are appropriately concerned about misuse of such “honeypots” of private financial information by central governments, banks and bigtech.  

It is easy to anticipate commercial and political pressure to conduct unlawful surveillance, gather information, report on activity and, even, disable financial transactions with disfavoured groups and activities in a similar way to the widespread censorship of speech on social media by both government and bigtech firms. 

It is also logical to envision government agencies using legal authority under legislation, pending in the US Congress, to threaten the licences of stablecoins that are used to pay for things an agency does not think citizens should have, however legal.

Harnessing Web3 well

Enthusiasts of crypto technology place great hope and trust in its promise of a new decentralised “Web3” era of decentralised commerce. But will Web3 live up to its hype if banks, tech companies and governments see and control citizens’ everyday financial choices?

That is why, regardless of the form of digital currency – sovereign or non-sovereign, CBDCs or stablecoins – it is imperative that free society thoughtfully consider privacy and censorship implications and insist that the emergence of digital currency be consistent with constitutional freedoms and privacy rights. 

The countries that get the “values” right in digital currency will derive enormous economic value from this powerful new digital architecture.

In fact, individual economic privacy and censorship resistance should be affirmative design features and competitive advantages of digital value networks that are worthy of free societies. 

Designed properly, a digital dollar, digital pound or a digital euro, as well as stablecoins based on the currencies of open market economies, should run on systems that are operationally transparent. 

They should provide independent assurance about technical function, security and resistance to impermissible monitoring, data mining, censorship and other exploitation.  

By encoding individual economic privacy into their very architecture, CBDCs and stablecoins should serve as a desired instruments for people the world over who aspire to financial autonomy and inclusion consistent with basic human rights. 

Thirty years ago, the first wave of the internet rolled across the globe. Then, the US, the UK and other leading democratic societies made sure that the Internet of Information reflected the values of open and free societies, rather than closed and repressive ones. 

In that noble effort, the public sector and the private sector worked together to set global internet standards and create key governing institutions: the Internet Society, ICANN and others.

Find our collective north star

Today, a new wave of the internet is fast approaching: an ‘Internet of Value’. The free world and free people must again work together to ensure that digital currency networks reflect the enduring virtues of financial freedom and economic liberty. 

Let’s work together as our enlightened predecessors did and ensure that the future of digital currency is one that enhances the free world. 

Let’s set standards for digital currencies – sovereign and non-sovereign, CBDCs and stablecoin – that are worthy of financial liberty and human dignity and people everywhere who aspire to it.  

This is an excerpt from a keynote speech delivered to the Financial Times Crypto & Digital Assets Summit on May 9.









Christopher. Giancarlo is chair and co-founder of the Digital Dollar Project. He previously served as chair of the US Commodity Futures Trading Commission.

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