Any U.S. central bank digital currency (CBDC) will involve trade-offs among important values — including between security and privacy. Many presume there is a clever tool for such balancing. In privacy “tiering,” transactions below a certain threshold of value would be generally private. Those above it would be subject to surveillance through some mix of identity requirements, preemptive data collection, and such. But a tiered system would not protect privacy as imagined. Because of likely evasions, it would ultimately require identification of all users and tracking of their transactions.
The tension between security and privacy is real. At one extreme, a system that is wide open to government agents would allow them to make full use of financial transaction information for law enforcement, national- and state security purposes. This would come at a tremendous cost to privacy and liberty. The other extreme, allowing maximal and indefeasible privacy, would carry significant security costs. Between the two extremes lies privacy tiering. It is attractive as a sort of slider, allowing policymakers to draw the line between privacy and security. There is precedent for tiering. The current amount at which U.S. financial surveillance law requires repor …
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