Disciplining Central Banks : Addressing the Privacy Concerns of CBDCs and Central Bank Independence

Central bank digital currency (“CBDC”) is a crucial FinTech development which aspires to overhaul the current payment system. In the wake of the COVID-19 pandemic, CBDCs' promises to reduce personal contact, facilitate socially desirable use of money, and initiate more targeted monetary measures have increased their popularity. In addition, CBDCs can potentially serve as a tool to internationalize a sovereign’s currency. World central banks have gradually formulated a consensus on structuring CBDCs, leaving the regulatory aspects of CBDCs deserving of more attention. Among the regulatory issues related to CBDCs, observers often mentioned their association with privacy concerns, but comprehensive studies on this aspect of CBDCs remain limited.This paper discusses the privacy concerns associated with CBDCs and attempts to introduce discipline upon CBDCs and their issuing central banks. We first demonstrate the privacy implications of CBDCs and highlight the risks of sovereigns misusing CBDCs to serve their agendas. We then discuss, in a domestic context, several institutional designs that may address privacy concerns and propose several disciplinary mechanisms that may enforce the privacy protection laws against issuing central banks. We finally highlight the extraterritorial character of modern privacy laws, which creates room for foreign privacy protection regulators to discipline the CBDCs of other jurisdictions. Through this analysis, we argue that the application of modern privacy laws and proper supporting mechanisms may effectively discipline CBDCs and their issuing central banks