Former CFTC chair urges US to develop privacy-focused CBDCs

Christopher Giancarlo, the former chair of the Commodity Futures Trading Commission (CFTC), has called for the United States to lead in developing central bank digital currencies (CBDCs) that prioritize individual privacy and democratic values.

In a recent op-ed for The Hill, Giancarlo argued that the US must use current technology, such as that used by some cryptocurrency protocols, to create “freedom coins” that protect freedom of speech and the right to privacy.

Giancarlo, who co-founded the Digital Dollar Project, a research organization focused on the implications of a US CBDC, highlighted the importance of privacy considerations in a March 1 report he co-authored with American Enterprise Institute fellow Jim Harper. The report argues that CBDCs could offer an opportunity to enhance constitutional protections and reassess current financial surveillance activities.

To achieve this, CBDCs could use technologies like “zero-knowledge proofs, homomorphic encryption, and multiparty computation” to enable parties to prove an encrypted proposition is true without revealing the underlying information, Giancarlo and Harper argued.

However, the authors also noted the need to reexamine current financial surveillance policies, particularly those related to anti-money laundering (AML) and know-your-customer (KYC) measures, which they argued allowed too much surveillance without probable cause.

The authors pointed to the risk of CBDCs being used for surveillance purposes, similar to China’s e-yuan, which allows the Chinese government to link political conformity to individual prosperity and relegate political dissenters to poverty by making all transactions visible to the People’s Bank of China.

Senator Tom Emmer, co-chair of the US Congressional Blockchain Caucus and a vocal opponent of a US CBDC, has expressed similar concerns about the potential for a CBDC to be used for surveillance. Emmer introduced the CBDC Anti-Surveillance Act in 2022, which seeks to prevent CBDCs from tracking transaction-level data down to the individual user and being programmed to choke out politically unpopular activity.

Giancarlo’s call for the US to prioritize privacy and democratic values in CBDC development comes amid growing interest in CBDCs globally, with many central banks exploring the potential benefits and risks of issuing digital currencies.