Financial privacy has been undermined by governments for decades, but it seems as if officials have increased their efforts as of late. The European Union voted in favor of outlawing anonymous transactions in cryptocurrency, Canada’s prime minister chose to freeze the bank accounts of protestors, and the U.S. Congress was considering expanding financial surveillance by the Internal Revenue Service to all bank accounts with $600 of annual activity. And all of that has taken place in just the last six months.
Amidst all this trouble, an interesting proposal emerged: the Electronic Currency and Secure Hardware (ECASH) Act. Representatives Stephen Lynch (D‑MA), Jesús Garcia (D‑IL), Ayanna Pressley (D‑MA), Rashida Tlaib (D‑MI), and Alma Adams (D‑NC) introduced the bill as another option in the ongoing digital currency debates.
It’s Not a CBDC. (Kind Of)
The promotional website for the bill argues that e‑cash would not be a central bank digital currency (CBDC). This distinction is not a surprise given the growing opposition to CBDCs. As described on the website, the bill keeps the central bank out of the matter:
Although E‑Cash is a form of digital dollar, it is issued by the Treasury, not the Federal Reserve, and accordingly is not a CBDC.
The argument is certainly fair: e‑cash is not a “central bank digital currency” if the central bank is removed from the process. Still, the argument may not win much support for the bill because the general public is unlikely to be concerned over whether the Federal Reserve or Treasury issues the digital currency. Many will recognize that the government is issuing it, and that is the problem because governments have violated financial privacy countless times over the years.
It’s Private. (Kind Of)
The bill’s sponsors have gone to great lengths to assure the public that e‑cash would have firm financial privacy protections for people who “value privacy,” “wish to avoid surveillance,” and “are concerned about censorship.” And this effort is certainly commendable. Far too many government projects (e.g., postal banking) have completely ignored that financial privacy is something people value.
But the bill does have a few challenges ahead of it. First, when it comes to preserving privacy, the somewhat antiquated nature of cash works in the public’s favor. The government is able to track the movement of cash when serial numbers are scanned in money counters, but the physical (and cumbersome) nature of cash still limits the government’s ability to conduct mass surveillance. In contrast, the government’s ability to easily track e‑cash is limitless. The bill seems to suggest there would be protections ingrained in the design of the code, but, unlike with decentralized cryptocurrencies like Bitcoin that require a consensus to make changes, it’s unclear what would stop the government from editing that code in the future.
Second, it’s concerning that the spirit of the bill is already being hedged––especially given that this hedging is in an effort to stop not criminal activity, but potential criminal activity. “To curb crime, there would be a low limit on the value that could be [held in e‑cash],” Representative Lynch told the New York Times, “and [e‑cash] would be subject to the same anti‐money‐laundering rules that apply to paper bills.” So on the first point, the bill seems to take inspiration from civil asset forfeiture cases where carrying large sums of cash has been treated as suspicious activity. And on the second point, the deference to the existing anti‐money laundering (AML) regime seems to suggest that the bill’s sponsors do not see that regime as a problem for financial privacy.
With all of that said, a proposal that treats financial privacy as something worth preserving is a step in the right direction for how society at large thinks about digital money. And more importantly, the proposal is a reminder of why Congress should investigate the larger changes that need to take place in U.S. financial policy. If Congress can confront and fix the violations of financial privacy that have taken place under the existing AML regime, Bank Secrecy Act (BSA), and third‐party doctrine (to name a few), financial privacy will not need to be the highlight of any one proposal as it would be a core principle of the U.S. financial system.
Nicholas Anthony is a policy analyst in the Cato Institute’s Center for Monetary and Financial Alternatives.