EDITOR NOTE: Financial privacy is a major concern when it comes to the development of a digital dollar. Will it be like China, where your account is registered to a cell phone? If so, does it mean that Google or Apple can covertly track you, or listen in on you? Aside from institutional intrusion, what about all of the “bad actors” out there--criminal hackers, domestic or foreign? No matter how secure any company tries to make it, there are several doorways into a digital network. In contrast, non-CUSIP physical gold and silver have just one doorway. It’s called a vault. It has one main location--a private depository. And it has only one mode of access--the owner of those to whom the owner grants access. Some innovations like the digital dollar are mind-blowing. But mind-blowing isn’t synonymous with safe, sound, or practical.
China’s central bank and the U.S. Federal Reserve agree that a fully anonymous national digital currency is not feasible. But Fed Chair Jerome Powell believes when a digital dollar is developed it must provide users with more privacy than the People’s Bank of China’s (PBOC) planned digital yuan.
“The lack of privacy in the Chinese system is just not something we could do here,” Powell said while testifying before the House Committee on Financial Services on Tuesday. “We’re only beginning to think carefully about these things and it’s going to be a careful, detailed and probably lengthy process of consideration.”
Powell’s comments came after Changchun Mu, the head of PBOC’s digital currency arm, was reported as claiming the digital yuan will offer greater privacy protection than any other digital payment system.
The Chinese official said the digital yuan will have “controllable anonymity,” in which the most private account would only require a cell phone number. However, people need to register with a phone service carrier with their ID to have a phone number. Users would also have to disclose more personal information if their deposit amount hits a certain threshold.
The Fed has not specified how much anonymity any digital dollar would allow users to have, in part because there is no concrete timetable for a digital dollar. While there will be detailed research on the proposed stablecoin coming out as early as July, Fed officials have yet to disclose whether the central bank would host customer accounts or enlist a trusted third party, and what privacy protections users would have in case of a breach.
Powell said he agreed with Rep. Bill Foster (D-Ill.), who said during the hearing an anonymous, untraceable digital dollar “is not a viable option for our country or free world” because of the potential for money laundering or funding terrorism.
Powell and Treasury Secretary Janet Yellen, who also testified before the committee, have voiced their concerns in recent months about how cryptocurrencies could be used for such illicit transactions because of their anonymous nature.
Originally posted on Yahoo! Finance