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Recent reports note that Wang Jingwu, vice president and chief risk officer of Industrial and Commercial Bank of China, authored a whitepaper which detailed for the China Financial Journal the necessary laws, in his view, required for the country’s CBDC.
He argues for a legal blueprint which has been described as needing to “clearly defin[e] and outlin[e] acquisition, use, risks, privacy, control and other details that clarify how it will operate nationwide…”
Functionally, there is no doubt that any central bank digital currency must have such defined regulations and characteristics. However, the devil is in the details. Just because there is a clearly defined privacy policy, does that mean that the policy will stand the test of time? Are there checks and balances to ensure that private financial data isn’t compromised by an authoritarian regime?
Jingwu said,
“At present, the digital renminbi is not regulated at the level of laws and regulations, and there is a lack of legal guarantees about the acquisition, use, risk prevention and control of digital renminbi. With the expansion of the circulation of digital renminbi, it is urgent to provide solid protection through legislation.”
While it is true that protection must be codified, protection is only valuable if it does, indeed, protect. The People’s Bank of China can track the digital yuan throughout the lifecycle into circulation o, too, can operating agencies track the chain. We must be concerned that CBDCs do not turn over control of our financial system to governments, particularly those with a history of authoritarian rule.
Jingwu aims to “clarify the boundaries of the digital renminbi privacy protection” and ensure that personal data “can only be used for national security purposes.”
This is a privacy advocate admitting there must be a carve-out for national security purposes. As we’ve learned over the course of history, the phrase ‘national security’ has, at times, been used as a catch-all, giving the government tremendous power and trampling over individual privacy rights.
There are, indeed, many other issues that need to be worked out before a full-scale, public launch of a CBDC. What happens if a vendor encounters technical issues? How do you define its legal status? What parties are responsible for the distribution? These are only a few worthy considerations.
But paramount to all of those things, one simple question rises to the top what guarantees does the citizenry have that its spending habits and transactions won’t be tracked? Cash represents economic freedom. It means that you can use your assets as you wish in a private manner. We have laws that we need to abide by, of course. But cash represents freedom. Freedom to move and relocate. Freedom to choose vendors and suppliers. Freedom to live peacefully and in privacy.
A recent ATMIA whitepaper noted that,
“[I]n a survey conducted by the Boston Consulting Group (BCG), nine out of 10 people consider financial data and data regarding payment card use private. Fifty-percent consider information on their location, internet use, email, purchasing history and use of social networks to be essentially private.”
While some governments’ stated interest may be in tracking payments to limit the shadow economy, research by Friedrich Schneider has been summarized to note estimates that “eliminating cash would only shrink the shadow economy by two to three percent.”
CBDCs could be used to force a population into a privacy-less financial world. This is a world in which we don’t want to live, and the slope cannot be slipperier. It is for that reason that, while Jingwu’s commentary sounds positive, the actual execution is far more important than soundbites. We must take the greatest care to preserve our financial freedoms.
Richard Gardner is the CEO of Modulus. He has been a globally recognized subject matter expert for more than two decades, offering complex insight and analysis on cryptocurrency, cybersecurity, financial technology, surveillance technology, blockchain technologies and general management best practices.
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