The fintech space has gone agog with CBDCs, but there are serious fears of privacy as their inception draws closer.
Central Bank Digital Currencies (CBDCs) have received increased interest in the financial and crypto sphere, particularly since the COVID-19 pandemic began. In the U.S. there has been an incessant call for a universal electronic payment system for stimulus checks, leading to the proposition and adoption of a digital dollar.
There is accelerated interest on CBDCs
Although the U.S. government is in the process of creating a digital currency, there are still concerns about piracy. In a recent report, the impact of COVID-19 on retail payments may have led to the accelerated interest in CBDC development. This has been because of the heavy decline in cash payments as a result of fears surrounding COVID-19 transmission.
But several countries even started the development of CBDC before the United States, and some are close to the conclusion of the development phase. China in particular has been developing its digital Yuan since 2015, although details about the e-currency have been kept secret.
As far as CBDC is concerned, the Asian country is the leader in this area and been touted as the first country to introduce the digital version of its currency. China is far ahead of the U.S., who only started intensifying efforts after the COVID-19 outbreak.
Recently, China announced the completion of the backend architecture development of digital yuan.
With the current “digital arms race” between the U.S. and China, the U.S. government is now more serious in pursuing a digital US dollar version to prevent any challenge the Digital yuan or other e-currency may pose to the U.S. dollar.
Concerns about privacy
Despite the massive support CBDCs have received from financial experts, there are still concerns surrounding its privacy. The concerns are even louder when countries like China, who is renowned for mass surveillance using technology, are serious about creating a technology-driven currency.
Many are concerned that the digital yuan and other types of CBDCs may become some form of a social scoring system, as it’s being used in China.
The government can decide to prevent users from accessing their funds or even making transactions if it wants to punish an individual. Some financial experts reiterated that when CBDCs are used in this manner, the entire advantage and benefits the e-currency holds may be wiped out.
With serious issues raised about digital privacy, and for the fact that they may soon replace paper currency, people are looking at cryptocurrency as the only alternative to achieve financial anonymity.