The Privacy Cost of Currency

Abstract

Banknotes, or cash, can be used continuously by any person for nearly every transaction and provide anonymity for the parties. However, as digitization increases, the role and form of money is changing. In response to pressure produced by the increase in new forms of money and the potential for a cashless society, states are exploring potential substitutes to cash. Governments have begun to investigate the intersection of digitization and fiat currency: Central Bank Digital Currencies (“CBDC”). States have begun researching and developing CBDCs to serve in lieu of cash. Central banks are analyzing the potential for a CBDC that could be made available to the public and serve as a substitute for cash by providing an alternate, safe, and robust payment instrument. However, the greatest attribute of cash is that it protects purchaser anonymity. Fully eliminating cash, without a substitute that safeguards anonymity, would undermine privacy of individuals. The creation of a CBDC in response to the potential cashless society raises the question whether the anonymity previously provided by cash must be safeguarded by the state. This note posits that a central bank in a cashless society must opt for the token-based form of CBDC, which provides the most privacy to individuals. States that choose an account-based CBDC will be in violation of fundamental international privacy principles. This note begins by drawing the crucial distinction between account-based and token-based currencies. Then, this note argues that the broad right to privacy in the digital age is inclusive of personal financial data; this data is subject to the lawful and arbitrary standards of article 17 of the International Covenant on Civil and Political Rights (“ICCPR”). Applying the ICCPR framework, it becomes abundantly clear that the privacy of individuals must be protected, even in the rapidly changing landscape of payments in the digital age.