- CBCDs offer traceability — but that comes with a cost to consumers, City mayor says.
- Stablecoins present a risk to governments.
Central bank digital currencies threaten users’ privacy, London’s Lord Mayor Michael Mainelli told an event hosted by digital pound enthusiasts on Wednesday.
CBDCs can fight financial crime, as payments are traceable, and transaction monitoring can be automated — but there’s a dark side, Mainelli said.
That transparency “equally implies a loss of privacy,” he said. “I’m sorry — you can’t have both.”
His comments come as CBDCs remain a loaded topic across the world. While governments tout them as a welcome solution in an increasingly cashless world, critics slam CBDCs as a threat to people’s privacy.
Digital Pound Foundation
Mainelli should not be confused with London Mayor Sadiq Khan. Instead, Mainelli’s role, as the head of the City of London Corporation, is to be an ambassador for the UK’s big business and finance community.
Mainelli spoke at an event hosted by the Digital Pound Foundation, which promotes CBDCs, stablecoins, and tokenisation.
The traceability of money is nothing new, Mainelli said. Even paper money is stamped with individual serial numbers.
But with CBDCs, governments can track the movement of money at every point.
The idea of governments having unprecedented insight into consumers’ financial lives has alarmed libertarian-leaning politicians in the US. They have compared them to a Chinese Communist Party-style surveillance regime.
Republican presidential candidate Donald Trump has called the introduction of a digital dollar a “dangerous threat to freedom.”
Even more moderate critics say governments could surveil consumers’ spending, and implement targeted taxation to fulfil policy agendas, punishing citizens for buying fast food or cigarettes.
Proponents of digital currencies, however, say privacy can be baked into the design of CBDCs — for instance, by applying tech like zero knowledge proofs.
Plus, they offer convenience for consumers and an opportunity for the private sector to provide innovative payments services.
Governments also fear that without a CBDC, citizens will opt for stablecoins issued in the currencies of other countries, which may threaten the stability of their own money.
Fintechs are already integrating stablecoins into their payments infrastructure.
Payments giant PayPal has launched its own stablecoin, Stripe announced a $1.1 billion acquisition of Bridge this week, and firms like Revolut and Robinhood are said to be exploring launching stablecoins of their own.
Tech genie
Around half of the world’s central banks are considering a retail CBDC, and some countries — including India, China, and Jamaica — have piloted one.
The UK government has consulted on the concept of a so-called “Britcoin.” Among their findings, published early this year, it said privacy was a primary concern for respondents, and laws would have to be written to guarantee users privacy and control.
“Despite the reassurances we receive [from the government], the power would still be there,” Mainelli said.
The government could introduce a temporary override of these privacy overlays in an emergency — a terrorist attack, say, and then never repeal it, he said.
“It’s hard to put a technological genie back in the bottle,” he said.
Reach out to the author at joanna@dlnews.com.
