This new Forbes post provides a brief overview of my testimony last week in the U.S. House of Representatives at a hearing titled Digital Dollar Dilemma: The Implications of a Central Bank Digital Currency and Private Sector Alternatives. Naturally, Cato’s scholars don’t see much of a dilemma—the United States government should foster more private alternatives in the payments sector and should not issue a digital currency.
While the hearing went pretty much as expected, there was a strange moment that should be addressed. Around halfway through the hearing (see the 1:20:00 mark), minority witness Raúl Carrillo implied that the other witnesses had mischaracterized the nature of the Fourth Amendment to the U.S. Constitution. He then blamed privacy problems in the financial sector on the “connection between the private and public sectors.” Here’s the passage in full:
…this question allows me to first clarify a point regarding Fourth Amendment doctrine, which I believe has been mischaracterized on this panel. The third‐party doctrine creates problems precisely because of the connection between the private and public sectors. So, to suggest that it is just going to not apply to the public sector, and will apply to the private sector, is to fundamentally misunderstand constitutional doctrine. We could have a system wherein private companies work with public companies, and that still could lend itself to mass surveillance. So, these conclusory statements about application of the 4th amendment are not particularly helpful here. The laws and the technology of the models being suggested do not lend themselves to application of the Fourth Amendment.
First, I don’t believe anyone suggested that the third‐party doctrine (or the Fourth Amendment) would apply to the public sector. I’m positive I didn’t make that claim. And, if Carrillo meant to say that a system where private companies working with the government—as opposed to, in his words, public companies—could still result in mass surveillance, he’s probably right. Any system that requires private companies to record information so that the government has unfettered access is ripe for government abuse.
However, I have to take issue with whether “the laws and the technology” lend themselves to the application of the Fourth Amendment. It’s a baffling statement that caps off an otherwise confusing analysis.
The purpose of the Fourth Amendment to the U.S. Constitution is to protect people from government abuse (unreasonable searches and seizures). Yet, the Bank Secrecy Act requires private companies to keep financial records that the government can access without a search warrant. So, while it’s useful to distinguish between what private companies are doing and what the government does, there’s no doubt that the government has commandeered the private sector to implement the Bank Secrecy Act regime.
And we’ll have an even bigger problem if we move to a CBDC because the government will start collecting the data directly, thus making it even easier to access citizens’ financial records. The important principle, though, is that regardless of what type of money Americans use, the government should not have access to citizens’ financial records without first demonstrating probable cause and obtaining a search warrant. Nonetheless, since Congress enacted the Bank Secrecy Act in 1970, the government has had access without obtaining a warrant.
So, as Cato scholars argue, Congress should explicitly prevent the Fed (and Treasury) from issuing a CBDC. Separately, Congress should amend the Bank Secrecy Act so that law enforcement must obtain a warrant to access citizens’ financial records. Anyone interested in these topics should check out the full hearing.