Throwing out the GDPR to make Central Bank Digital Currency?

A monetary paradox is at work in the world’s wealthiest nations: more money is spent there than anywhere else, yet day by day fewer people seem to carry notes and coins in their wallets. The opposite paradox exists in the global south, where most people do not even have a bank account and so rely on cash instead. That is why central banks around the world are looking into the possibility of building a public financial infrastructure based on digital currencies. But will this mean that Big Brother will be able to cut the power when the bill isn’t paid?

That is the concern raised in an article by Dutch investigative news site Follow The Money (FTM), which sets out the development of Central Bank Digital Currencies (CBDC). This is still a relatively unknown concept, so public debate on central bank-issued digital currency remains rather quiet.

The case for CBDC is compelling, because it will reduce people’s financial dependence on commercial banking services around the world. But important privacy safeguards are needed to prevent misuse by government.

In the FTM article, financial innovation expert Simon Lelieveldt says the idea that a CBDC should be smart and tied to an identity is mistaken. He argues that the way forward is a public digital currency that is as dumb and analogue as ordinary cash, and that all the ideas about traceability, monitoring and authentication of identity should be kept out of it.

I agree with Lelieveldt. Blockchain technology and AI, combined and used as a very smart version of money, could be turned into a perfect tool for controlling citizens. It is bound to be a hit with every non-democratic government across the globe. It might even be a threat to democracy, given that democratically elected leaders might be tempted to use that technology to exercise powers over their electorates that we have not seen before.

Gaëlle Le Gars, who worked at the European Commission for 10 years, concurs: these functions could tempt a government to use the technology for political ends. In a fairly benign form, for example, by making it impossible for alcoholics to buy alcohol with CBDC. That could of course have further-reaching consequences. The possibilities for state control are endless.

Which is why, to prevent all of this, digital cash should be very dumb and as anonymous as possible. I believe that could be done if the technical architecture of digital cash is built in line with privacy-by-design principles. Which is, by the way, already the applicable law. Which brings me to the GDPR.

GDPR?

It seems that the European Central Bank, like the European Commission, could do with a reminder about the legislation that already exists. The GDPR should always be taken into account when making new legislation or policy. Because these CBDCs in Europe are still being developed, it is important to think about how GDPR rights such as the right to be forgotten, or the right not to be subject to a decision based solely on automated processing, relate to them.

I am fully behind digital cash. But I am wholly opposed to it if it emerges as anything smarter than a crumpled €10 note.

In collaboration with Luis Hernandez.