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Attacks on CBDCs highlight crypto’s new battleground

Attacks on CBDCs highlight crypto’s new battleground
This week, Florida governor and potential 2024 presidential candidate Ron DeSantis introduced a bill to ban a federally adopted CBDC.

US lawmakers are amping up efforts to block the adoption of a central bank digital currency as a banking crisis and crypto scandals shore up arguments in their favour.

The White House, while not ruling out a CBDC, warned in a report this week that Federal Reserve-issued coin could hurt credit availability and raise the risk of bank runs.

It caps a string of Republican bills that have cited worries that a digital dollar would enable the government to spy on private transactions and choke cryptocurrency innovation.

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While fears of mass-surveillance via CBDCs have circulated for years, the recent banking meltdown and regulators crackdowns on the overall crypto industry have rocketed the digital dollar debate to the forefront.

That’s because the boom in global CBDC projects has helped the issue reach “critical mass,” Jannah Patchay, the policy lead of advocacy group the Digital Pound Foundation, told DL News.

“A lot of work has been happening behind the scenes,” Patchay said, saying global CBDC efforts have been overshadowed by the pandemic and the economic woes.

She pointed to projects like the UK government’s so-called Britcoin initiative and Brazil’s aim to launch a CBDC by 2024, along with the 124 active national projects in the works.

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And despite the White House report, the US Department of the Treasury has said the technological development of a CBDC is underway so that, if policymakers give the go-ahead, the project can come to fruition rapidly.

This week, Florida governor and potential 2024 presidential candidate Ron DeSantis – who backed a law to enable businesses to pay taxes with Bitcoin – introduced a bill to ban a federally adopted CBDC, saying it “will stifle innovation and promote government-sanctioned surveillance.”

Texas Senator Ted Cruz followed suit with a similar bill the following day. And earlier this month, South Dakota Governor Kristi Noem vetoed a bill that would bar cryptocurrencies from being used as money, arguing it would open the door for a CBDC.

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And Security experts including Jeremy Fleming, head of the British digital spy agency Government Communications Headquarters, have raised concerns about Beijing potential use of a digital yuan to surveil its citizens.

CBDC backers have fired back at the criticisms.

This week, European Central Bank president Christine Lagarde said that stablecoins are the bigger risk, as they have a greater use for collecting consumer data.

Willy Lim, director of CBDC Advisory at R3, echoed Lagarde’s view. He told DL News that stablecoins proved volatile in the aftermath of Silvergate Bank, Silicon Valley Bank, and Signature Bank crashes. That strengthens the case for CBDCs, he said.

R3 has provided technology underlining CBDC projects like the Swedish e-krona.

“In the wrong hands, any type of payment instrument can be used to recreate an Orwellian nightmare, including cryptos,” Carlos Leon, head of financial market infrastructure and digital currencies at FNA, told DL News.

Leon, whose FNA firm has provided CBDC simulation tools to central banks in the Middle East and Europe, advocates for more regulation to protect consumers and to oversee the payment system.

He said: “Banning the payment instrument, either CBDC or crypto, does not solve the problem.”