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Banning digital assets makes about as much sense as regulating against gravity. How many times did the market dip, back in 2017, on the news that China was banning Bitcoin (BTC), only to promptly recover at the realization of the notion’s absurdity?
But while Bitcoin is, to all intents and purposes, unbannable, the same can’t be said of central bank digital currencies—digital forms of national currencies issued and regulated by their central banks. In fact, that’s one of their core properties. Otherwise, governments couldn’t put their citizens in the naughty chair when they fall out of line by prohibiting their right to buy groceries.
To be fair, most governments aren’t as heavy-handed as China, with its notorious social credit scoring and rampant surveillance. Instead, they are seeking to develop digital currencies for boring bureaucratic purposes, such as greater administrative efficiency and economic data gathering.
Still, it’s no coincidence that China has been one of the biggest proponents of CBDCs and is racing ahead with its own implementation. And it should, therefore, come as no surprise that the United States, which instinctively inverts every Chinese position, should have canceled its own digital dollar after President Trump laid the banhammer.
There’s a beautiful yin and yang-ness to China banning Bitcoin and the US banning CBDCs. The self-perpetuating cycle is complete. Trump’s decision, like many that emulate from his “shoot first and ask questions later” government, is somewhat reactionary. However, sometimes, shooting first is the smartest thing you can do, and in this case, Trump has hit the target.
America’s digital dollar deserves to be shot down—as do those of every other Western nation. Not because the concept is wrong but because the implementation certainly is. If billions of citizens are going to have their data and financial assets placed on a global database, it’s going to need much better privacy protections than the current proposals offer.
The first domino falls
There are all kinds of ironies wrapped up in Trump’s decision to ban digital dollar. Like his willingness to countenance a Strategic Bitcoin Reserve or endorse a $TRUMP memecoin while simultaneously shunning a digital currency with a potential real-world use case. But even his most vocal critics have had little to say about this mandate.
While the US was by no means the staunchest advocate for a digital currency, with numerous nations much closer to launching their own efforts, the idea was very much on the table until Trump yanked the cloth. In becoming the first President to outright ban a CBDC, he’s tipped a domino that could cause other nations to follow suit, and the reason cited resonates with the people—privacy.
While other Western nations, especially in Europe, like to maintain the impression that they’re nobody’s master, the uncomfortable truth is that US decisions exert a strong pull on EU policy. Thus, America’s curtailing of its own CBDC will inevitably weaken the case for the EU’s digital euro and prompt renewed scrutiny of the purported privacy protections. If the EU wishes to get its own CBDC over the line, it will first need to return to the drawing board.
No privacy, no point
Despite the digital euro being described as being “as private as cash,” this isn’t strictly true. The potential for governments, NGOs, and other shadowy organizations to gain unwarranted insight into citizens’ spending habits—and to censor transactions or “cancel” customers altogether—is very real.
That’s not to suggest that backers of the digital euro are acting out of bad faith necessarily, more out of bad tech. Blockchain evolves fast while the wheels of policymaking turn slow, meaning that by the time digital currency pilots have been greenlit, the underlying tech is already looking tired. As anyone directly involved in web3 will tell you, there are now far better ways to enforce onchain privacy while maintaining compliance—ways that don’t involve placing the privacy of every citizen on a massive database and then broadcasting it for all the world to see.
From ZK proofs to fully homomorphic encryption, privacy standards have become more robust and feature-rich in recent years, allowing for nuanced disclosure of sensitive data without leaving it at risk of exposure to centralized entities and potential malicious actors. Crucially, onchain encryption standards have also become much lighter, allowing for more efficient computation.
Indeed, ZKs and FHE are the sorts of technologies that would be ideally suited to facilitating the outcomes the EU wishes to achieve with its digital euro, such as tiered privacy in which low-value purchases are lightly scrutinized and high-value ones are subject to more intensive checks.
The good news is it’s not too late to remedy this: the digital euro is still at an early stage, with its final implementation still being worked out. There’s time to get this right. If there’s one thing we’ve learned from the whirlwind that is the Trump administration, it’s that a lot can be achieved in a month. There’s no need to move fast and break stuff.
But make no mistake, the EU does need to move and signal that its own digital currency will be everything the proposed digital yuans and dollars of the world are not: Secure. Private. Robust. Otherwise, it risks being canceled, just like CBDCs in the US.
