Australia’s Retail CBDC: The Unwanted Privacy Sacrifice Nobody Asked For | Opinion

Australia's leap into a retail central bank digital currency (CBDC) comes with strings attached—strings that strangle privacy.

The Trade-Off Down Under

While the Reserve Bank of Australia pushes forward with its digital dollar pilot, critics argue it’s solving a problem that doesn’t exist—at the cost of financial anonymity. The promise of efficiency masks what could become a surveillance tool dressed in monetary policy clothing.

Who Really Benefits?

Banks and regulators get granular transaction oversight. Citizens? They get a digitized version of cash with fewer freedoms. Meanwhile, decentralized cryptocurrencies continue to offer what CBDCs can’t: true peer-to-peer transactions without Big Brother’s ledger.

The Bottom Line

Another case of financial innovation serving institutions first, people last—with the added bonus of making tax evasion harder for the little guy while whales offshore their assets as usual.

Rollouts and roadblocks

It’s worth mentioning that the Australian Securities and Investments Commission “is providing regulatory relief to participants to support and streamline the pilot…[supporting] the responsible testing of tokenized asset transactions, in some cases using CDBCs, between participants and a limited number of financial institutions.” In other words, participants in the trial are receiving support that members of the general public and organizations choosing to adopt a CDBC once the trial is over WOULD not. It’s possible that individuals who aren’t tech savvy could end up falling foul of regulations and/or scams unless a CDBC is rolled out in just the right way.

Any flaw or hiccup in that rollout, from downtime to interoperability issues, erodes trust in the technology and institutions involved. If that mistrust intensifies, we may see the chasm between digital-first and cash-centric spenders grow wider. Closer monitoring of and regulation around CDBCs can help mitigate this, but also increases the risk of misuse.

Although few believe that the centralized infrastructure required for a CBDC would be abused on day one, the fact is that the potential to freeze, restrict, or entirely block certain types of spending or spenders exists. Whatever guardrails might be in place, the potential for this sort of abuse is there. For sceptics, it’s not a case of “if” but “when” that will happen.

Programmable money, programmable control

The big concern here is that a CBDC could potentially let the government digitally monitor every transaction made using the platform. That’s a worry for Australian citizens, with two-thirds of those who responded to the RBA’s 2022 Consumer Payments Survey stating that they “often or always consider privacy when deciding how to pay for things.”

Although the RBA’s report acknowledges “the possibility of having a retail CBDC offer full anonymity for at least some transaction types,” regulatory requirements around money laundering, tax evasion, and so on mean that it’s unlikely any CBDC will ever offer the same level of anonymity that cash or crypto do.

World governments are, understandably, eager to downplay this aspect of CBDCs. 

Take the Bank of England, which information hub about the digital pound asserts that “data privacy regulations would still be in force and neither the Bank nor the Government would have access to your personal data” and that “neither the Bank of England nor the Government would be able to program your digital pounds or restrict how you spent them.” They do, however, acknowledge in the same breath that “you would have a commercial relationship with your [wallet] provider and they would require some FORM of ID to prevent financial crime or fraud.” The UK’s vision for implementing a CDBC sounds a lot like traditional banking infrastructure, which has not historically proven immune to third-party influences.

Final thoughts

The RBA has already acknowledged that “the potential benefits and use cases for a wholesale CBDC [i.e., one used exclusively by central banks, commercial banks, etc. to settle transactions involving tokenized assets] seem more tangible at this point.” So why bother to press ahead with a retail CBDC at all? 

Some in the Australian government would no doubt argue that it would be a coup for Project Acacia to blossom into a full-fledged retail CBDC. Indeed, at the time of writing, only three countries—Jamaica, Nigeria, and the Bahamas—have successfully launched CBDCs. This is still very much uncharted territory, and many believe that the only way out is through. We’ll have to wait and see, based on the pilot program, whether decision makers in Australia find enough reasons to justify a wider rollout.

Maksym Sakharov is the group CEO, co-founder, and board member of WeFi, an on-chain, non-custodial neobank. With over eight years of management experience in the IT industry, Maksym brings a diverse skill set encompassing strong leadership, operational excellence, and service delivery. He has served as the CEO and co-founder of Exflow, as well as the founder and CEO of Whitemark. His career spans various environments, from start-ups to established IT development firms, where he has successfully managed operational performance across the Asia Pacific region. His strategic approach to management focuses on optimizing processes and driving team performance, enabling organizations to thrive in competitive markets. Through his extensive experience, Maksym has developed a reputation for fostering collaboration and innovation, making him a valuable asset in any operational setting.