Hey folks. We’re still talking central bank digital currencies and digital dollars, so here’s some quick and vaguely unhinged thoughts on recent actions and statements on this front.
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Digital (dollar) privacy
Privacy in central bank digital currencies (CBDC) is a major concern for lawmakers and potential users. Allowing for, or even encouraging privacy is simple enough in theory but the technical practicality of enforcing privacy is another question altogether.
Why it matters
Privacy’s a big issue! And lawmakers think so, too. But there's various approaches to this and we’re starting to get a taste of these differences.
Breaking it down
U.S. senators Chuck Grassley (R-Iowa), Ted Cruz (R-Texas) and Mike Braun (R-Ind.) have introduced a bill to "prohibit the Federal Reserve" from issuing a digital dollar that could be sent straight to users.
The untitled bill, introduced by Cruz last Wednesday, would block the Federal Reserve from offering "products or services directly to an individual," maintaining accounts for individuals or issuing CBDCs to people.
This caught my eye because I’m not sure the Fed has any intention of doing this.
Fed officials – and its recently published white paper on CBDCs – have long held that the U.S. central bank will not, and indeed perhaps can not, issue a CBDC without further authorization from Congress.
Jerome Powell, the Fed’s chair, said as much in testimony before the House Financial Services Committee earlier this year.
"The Federal Reserve does not intend to proceed with issuance of a CBDC without clear support from the executive branch and from Congress, ideally in the form of a specific authorizing law," the white paper, published in January, said.
The White House has expressed interest in exploring a CBDC but stops well short of saying one must be created.
Still, efforts to have the U.S. issue a digital dollar continue. Last week, several lawmakers introduced a bill that would authorize the Treasury Department – not the Fed – to issue the CBDC.
The “Electronic Currency And Secure Hardware Act” proposes an electronic dollar that users could hold on smart cards or hardware wallets on their phones. The ecash bills would not be tracked on a decentralized ledger (or indeed, any ledger of any type), which its proponents argue will help preserve user privacy.
The press release issued by Cruz’s office cited concerns about privacy, saying, “Specifically, the legislation prohibits the Federal Reserve from developing a direct-to-consumer CBDC which could be used as a financial surveillance tool by the federal government, similar to what is currently happening in China.”
The ECASH Act would seem to address this concern by removing all possible opportunity for financial surveillance.
“It doesn't involve any account, which means that you can use it peer-to-peer directly. You can use it offline and because there's no third party, there's no loss of privacy expectation that comes with the third party doctrine,” Rohan Grey, who advised on the bill, told me.
Across the Atlantic, the European Union is emphasizing privacy in its own CBDC discussions. European officials have yet to determine whether they want to issue a CBDC (so similar to the U.S.) but are saying smaller or less risky transactions should allow for more privacy.
What remains to be seen is just how such a system can be created on a technological level. The ecash bills would have to be irreproducible by anyone who isn’t authorized to issue such bills (so as to prevent money laundering and forgery), despite being entirely contained within localized hardware.
In other words, it would have to address the double-spend problem without the digital ledger that Bitcoin uses.
Changing of the guard
CFTC Chairman Rostin Behnam testified before the House Agriculture Committee last week. Many of the members’ questions centered around an FTX proposal to directly settle margined trades but there were also signs that lawmakers are considering Behnam’s request that Congress authorize his agency to have direct spot market oversight of crypto. Rep. Rodney Davis (R-Ill.) asked: "If we define digital commodities and give the CFTC jurisdiction, should the CFTC have first crack at deciding what a digital commodity is?"
“Yes,” Behnam said.
- Does the Metaverse Need a Free Trade Agreement?: CoinDesk’s Jack Schickler spoke to trade policy expert Sam Rowe about the metaverse and, more specifically, how trade and commerce in virtual reality could interact with laws from physical reality.
- Elizabeth Warren Calls for US to Create a CBDC: U.S. Senator Elizabeth Warren believes it is time for America to begin considering a central bank digital currency.
- SEC Rejects Spot Bitcoin ETF Application From Ark 21Shares: Was anyone really surprised?
- (Vice) Axie Infinity has been in the news for a hack of its Ronin bridge that let (a) attacker(s) steal more than $600 million in crypto without being detected for over a week. The project appears to have issues well beyond that, however – its basic model appears to have facilitated the exploitation of impoverished workers by incentivizing a system wherein individuals with multiple “Axies” could loan them to newcomers, taking a cut, often a hefty one, of the play-to-earn game’s profits for themselves. This CNN piece after last week’s hack is also worth reading.
- (Reuters) Russian nationals living abroad who actively oppose Russia’s invasion of Ukraine are finding themselves locked out of their bank accounts in what appears to be a case of bank-compliance-with-sanctions-gone-badly. While the sanctions as issued are meant to be enforced against prominent Russian oligarchs and the country’s leadership to puns it for invading its neighbor, other individuals are being caught up, apparently for just having a Russian passport. It’s a similar issue to what happened to Russian Visa and Mastercard users abroad.
- (New York Magazine) New York Magazine profiles Adrienne Harris, the recently confirmed Superintendent of the New York Department of Financial Services, detailing how the agency has approached cryptocurrencies and what may change.
- (The Washington Post) “There’s no best way to sleep on a plane. There’s no right way, either. There are, however, many ways.”
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See ya’ll next week!
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