Digital Dollar: Privacy and Transparency Dilemma

Many have voiced concerns that the digital dollar, a digital form of central bank money, will facilitate government surveillance, thus depriving users of privacy. This Article investigates critical technical designs proposed by leading think tanks, central banks, and scholars from interdisciplinary fields, reaching a surprising conclusion that contradicts popular belief: a digital dollar can offer better privacy protection than existing digital payment systems. The Article argues that those expressing concerns have made two flawed assumptions: (1) that digital dollar data is fully transparent regarding personal information and transaction details and (2) that the government or Federal Reserve has unrestricted access to this fully transparent data, posing a significant risk for misuse. In reality, the designs directly oppose these assumptions by allowing for a certain degree of anonymity—whether through payer anonymity, transaction anonymity, or a combination of both—while preventing government access to identity data and transaction details. The real issue is that if the digital dollar adopts these privacy-preserving designs, it will directly conflict with existing anti-money laundering and countering the financing of terrorism (AML/CFT) regulations that require transparent data to combat financial crimes. Accordingly, this Article proposes changes to financial institutions’ record-keeping, reporting, and information-sharing practices. It also suggests modernizing AML/CFT requirements to allow a certain degree of anonymity to protect privacy while still fulfilling public interest objectives such as combating money laundering and terrorist financing.