Privacy Beyond Possession : Solving the Access Conundrum in Digital Dollars

The advent of a retail central bank digital currency (CBDC) could reshape the US payments system. A retail CBDC would be a digital representation of the US dollar in the form of an account or token that is widely accessible to the general public. It would be a third form of US fiat money that is created and issued by the Federal Reserve and complementary to physical cash. CBDC proposals have suggested a myriad of retail CBDC design models with an overwhelming interest in a retail CBDC that either implements a centralized ledger system or some form of a distributed ledger system to process payments. The technology of a retail CBDC would enable instantaneous payments for consumers and greater transparency for government officials. Additionally, CBDC proponents are championing retail CBDC as a tool to promote financial inclusion. However, antiquated US privacy protections may be inadequate to safeguard against the potential risks to individual privacy within digital payments and consequently undermine financial inclusion. A retail CBDC system that is under the control of the Federal Reserve could bolster regulatory compliance and oversight but also exacerbate workarounds by government entities in the current US privacy framework that are concerning for individual privacy in the age of big data and dataveillance. A proper privacy framework governing retail CBDC records would alleviate risks to privacy and enhance public trust in a retail CBDC system. Refining the Privacy Act of 1974 or creating a new regulatory framework that is informed by both the Privacy Act and the impact of innovative data analytics would help balance the inherent tension between privacy and transparency of user identity and transactions within a retail CBDC system under the control of the Federal Reserve