FINANCIAL FREEDOM AND PRIVACY IN THE POST-CASH WORLD.

• Author: Gladstein, Alex

The future of currency is digital. The majority of transactions made every day are already electronic and controlled by banks or tech companies. These payments are easily surveillable, confiscatable, and censorable. Physical cash still functions as an essential savings mechanism and privacy tool for millions of people worldwide. With cash, individuals can buy goods and services or save without sharing their identity with a third-party merchant or custodian. But as banknotes fade from daily use, the future of financial freedom and privacy comes into serious jeopardy.

Users of platforms like Visa, Apple Pay, WeChat, or PayPal trade their freedom and privacy for convenience. Quick daily purchases done through phone apps or credit cards bear little resemblance to purchases done with cash. Transactions are no longer an exchange of bearer instruments but modified entries in a tech company's ledger. Personal information is demanded and shared rather than protected. For those without identification documents, these systems are inaccessible.

Beyond corporate money, two types of currency will most likely compete in the coming years to replace banknotes and their social function. One is central bank digital currency (CBDC): a digital central bank liability issued by governments across the world for citizens to hold and use directly in mobile wallet apps. The other is bitcoin: the world's most dominant, robust, liquid, valuable, and convertible cryptocurrency, distinguished by its monetary policy, which operates outside the control of governments and corporations. Both CBDCs and bitcoin could replace cash, but each system faces challenges in implementation, regulation, and adoption.

This article will take a global view on the civil liberties implications of both CBDCs and bitcoin as potential heirs to paper cash. According to the Human Rights Foundation (2020), approximately 4.2 billion people across 93 countries live today under authoritarian regimes. These individuals have little to no ability to push peacefully for reform concerning economic problems such as state corruption, currency debasement, and financial surveillance. Cash is a vital tool of savings and privacy for them. Once it is gone, the nature of whatever replaces it will, in no small way, dictate their freedom.

Financial Repression on the Rise

In countries like the United States and the United Kingdom, individuals have some protections against state or corporate abuse of financial power. Citizens in liberal democracies can petition effectively for change through their elected representatives, they can write op-eds to spark change in independent media, and they can even sue the government. Such accountability can trigger reform. For example, in the United States, after the global financial crisis, laws like Dodd-Frank (H. R. 4173 [2010]) were passed to prevent banks from gambling client funds. Central banks in electoral democracies also typically have some degree of independence from the executive branch, ostensibly shielding monetary policy from country's rulers' often-myopic whims. In addition, consumer protection laws, such as the Right to Financial Privacy Act in the United States, provide nominal defense against financial surveillance (FDIC 1978). But the truth is, even in liberal democracies where citizens can--in theory--protect themselves, corruption thrives and financial privacy is on the verge of extinction.

As revealed in the FinCEN files leak, in September 2020, Western banks are involved in the flow of hundreds of billions of dollars of dirty and corrupt money, much of which ends up in the coffers of the Davos elite, at the expense of the average citizen, with virtually none of the money launderers going to prison (FinCEN Files Reporting Team 2020). A 2018 investigation by the Financial Times revealed that outside of a handful of executives from Iceland, Ireland, and Spain, only four bankers in the world were sentenced to jail time for their role in the global financial crisis (Noonan et al. 2018). And only one Wall Street executive--Credit Suisse senior trader Kareem Serageldin--actually went to prison. Even in democracies, financial actors at the top of the food chain have immunity, while lower- or middle-class people face a proliferation of financial restrictions.

In the United States, citizens are ruled by the Bank Secrecy Act (BSA), which forces financial institutions to disclose information about their customers to the federal government in an increasingly intrusive way. The BSA created a $10,000 daily cash reporting threshold in 1970, but authorities never adjusted for inflation. This means more transactions fall under surveillance ever)7 year. When the threshold was first created, only transactions that were more than approximately $60,000 (in today's dollars) were monitored, but now, as a result of gradual inflation, payments six times smaller are tracked (Bureau of Labor Statistics 2020). Ironically, the U.S. government's FinCEN fines are adjusted for inflation (Financial Crimes Enforcement Network 2020).

In general, very little American economic activity is protected from the eyes of the government. In 1976, the Supreme Court case United States v. Miller, 425 U.S. 435 (1976) ruled that bank records are not protected under the Fourth Amendment, establishing the "third-party doctrine" holding that citizens who voluntarily provide financial information to banks have no expectation of privacy. This doctrine enables the government to collect financial data from banks without a warrant or probable cause.

The digital currency-focused nonprofit CoinCenter points out that, when the BSA was rendered constitutional in the United States in 1971, dissenting justices voiced major concerns about privacy leaks that would happen when Americans transacted through intermediaries (Brito and Valkenburgh 2020). The BSA still stands, but compared to 1971, when most small transactions were done with paper money, today nearly every transaction an American makes is done through an intermediary, available for the government to perase.

The situation in the United States is an example of how even some of the world's most empowered citizens--protected by a Bill of Rights, an independent judiciary, and a free press--struggle to challenge the creeping erosion of their financial rights.

In dictatorships and authoritarian regimes, the prospects for financial freedom and privacy are darker still. There are no accountability mechanisms like independent media or an independent Supreme Court in countries like China, Saudi Arabia, Russia, and Turkey. Such regimes often abuse their money printing abilities to satisfy short-term aims with no public accountability, they conspire with the heads of commercial banks to commit massive fraud, and they trespass on the financial transactions of their citizens with no fear of penalty.

Ironically, the Chinese, Saudi Arabian, Russian, and Turkish governments are all part of the Financial Action Task Force (FATF), a multilateral organization responsible for crafting recommendations and customs for global financial policy. These regimes stand diametrically opposed to values like freedom and privacy, yet can influence FATF recommendations, steering the whole world toward more financial restrictions and state immunity.

These regimes routinely win seats on the United Nations Human Rights Council. There is significant public protest against this hypocrisy, but there is virtually no opposition to these same regimes being allowed to govern financial bodies. One FATF recommendation worth mentioning is the "Travel Rule," which urges money transmitters to share customer information, creating an international financial dragnet.

In October 2020, in the United States, FinCEN and the Federal Reserve Board opened the door for a new, more invasive interpretation of this rule. Today, American financial institutions are obligated to share information about transactions of more than $3,000. The proposed rule would mean surveillance for any international transaction of more than $250 (Board of Governors 2020). This crackdown is in line with general government sentiment following last September's FinCEN files leak, where authorities have called for more restrictions and less privacy to "solve" the problem of corruption.

Given expected future U.S. inflation, this trend of decreasing the surveillance threshold is especially troublesome, leading to more and more transactions under watch. As CoinCenter notes, "The current threshold for 'travel rule' obligations ($3,000) was in 1971 roughly equivalent to $20,000 in today's money adjusted for inflation. The newly proposed $250 threshold would equate to a $40 threshold in 1971 when these warrantless data collection mandates were last constitutionally scrutinized" (Brito and Valkenburgh 2020: 4).

While there still may be a slim hope that citizens can push and lobby to keep some vestiges of financial freedom in electoral democracies, this possibility is nonexistent for the billions of people who live under dictatorships. Because of the great global digital transformation, even that slim hope for citizens of the free world is rapidly shrinking.

The War on Cash

Society is currently undergoing a historic shift away from paper-based, bearer asset daily money toward completely electronic, corporate ledger daily money. This change is part of a long trend of disuse of all bearer instruments, like stock certificates and bearer bonds.

Decades ago, small daily transactions were predominantly made with coins or notes, which disclosed nothing about the buyer to the seller. Cash is an excellent privacy tool, capable of fully anonymous transactions--for example, a donation to a community collection box. Cash also pennits citizens to save securely. Putting money under a mattress may be widely mocked, but banknotes and especially dollar bills are still commonly stored in this manner in countries around the world.

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