The paper also put forward CBDCs as solutions to high transaction fees and the energy use of mining cryptocurrencies like Bitcoin.
Cash use has lost a ton of ground to digital payments as the pandemic has changed the way people transact worldwide. Some experts have recently argued that central bank digital currencies, or CBDCs, could solve the problem of leaving that payments data in the hands of major tech platforms.
In a blog post published Monday morning, Federal Reserve of New York researcher Michael Lee and University of California Santa Barbara economics professor Rod Garratt expounded on a paper they released earlier this month.
The authors point to tech firms’ troubling use of consumer data, which has landed everyone from Visa to Facebook in trouble for potential antitrust violations. The blog post says:
“Transactions using digital payments enable firms to capture consumers’ personal data; cash does not. Data are not shared between firms. By gaining exclusive access to data from their own customers, firms may use this information to gain a competitive edge.”
A CBDC, the researchers suggest, is the best successor to cash in terms of efficiency and consumer protection in the digital age. While the post mentions cryptocurrencies as a separate alternative to bigger payment platforms, it does not explicitly advocate distributed ledger technology for a CBDC. It does, however, say a CBDC would be cheaper and more eco-friendly:
“Privacy-preserving digital payment alternatives, such as cryptocurrencies, involve high transaction costs and can be environmentally costly. Private initiatives proposed by ‘BigTech’ firms are likely to lead to even less privacy.”
Research into CBDCs has been accelerating. Interest initially soared at the beginning of the pandemic, and now, major central banks and financial institutions are busy churning out investigations into what needs to change for various jurisdictions to digitize their money.
Among the world’s largest economies, many see China as the leader in the CBDC race. Others, however, argue that this is because the Chinese government does not care about discussing privacy features for a digital yuan, which will ultimately become a tool of surveillance.
Lee had not responded to Cointelegraph’s request for comment as of the time of publication.
