Central bank digital currencies (CBDCs) may turn out to be the “single greatest attack on financial privacy since the enactment of the Bank Secrecy Act,” a policy analysis document states. To prevent the Federal Reserve and Treasury from threatening the financial system with CBDCs, Congress should “explicitly prohibit” their issuance, the document says.
CBDC threatens privacy of financial institutions
A policy analysis document released by the CATO Institute on April 4 warns that central bank digital currencies could be detrimental to the American public. In support of this claim, the analysis document notes that of the 2,052 comment letters sent to the Federal Reserve, two-thirds opposed the plan to launch a CBDC.
The policy analysis document, authored by Nicholas Anthony and Norbert Michel, also lists the concerns raised about CBDC and the associated risks that make CBDC unsuitable for Americans.20} As seen in the document {20 A key concern raised by opponents of CBDC is that it threatens Americans’ right to financial privacy, as can be seen in.
“Laws designed to combat terrorism, deter money laundering, and collect taxes provide the government, in large part, with the ability to exercise unrestricted surveillance over financial information. Nonetheless, the CBDC could doom the few remaining protections because it would give the federal government full visibility into all financial transactions by establishing a direct link between the government and each citizen’s financial activities,” the analysis document states.
Achieving this feat may be what the U.S. government would like, but the authors assert that the issuance of the CBDC will be what they call “the single greatest attack on financial privacy since the enactment of the Bank Secrecy Act and the establishment of the third-party doctrine.”
They call for intervention by the U.S. Congress
Anthony and Michelle argued that not only does the CBDC threaten citizens’ privacy rights guaranteed by the U.S. Constitution, but that it could also threaten financial freedom. They stated:
CBDC would provide countless opportunities for the government to control citizens’ financial transactions. Such controls could be preemptive (prohibiting or restricting purchases), behavioral (facilitating or restraining purchases), or punitive (freezing or seizing funds).
The policy document also suggests that CBDC poses a threat to the free market and gives cybercriminals “a prominent platform to focus their efforts.”
To prevent the U.S. Federal Reserve from creating these risks, the two authors recommend that Congress should “explicitly prohibit” the U.S. Treasury and central bank from issuing digital currency in any form. This could be done by amending Section 13 of the Federal Reserve Act to “limit the authority of the U.S. Treasury to expand its existing offerings.”
The authors also recommend that Congress should “require that the Fed’s compliance with the cost recovery provisions of the Depository Institutions Deregulation and Financial Management Act be subject to periodic third-party audits.”
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