IMF Managing Director Christine Lagarde caught some by surprise on Wednesday with her speech regarding the case for new, central bank-issued digital currencies at the Singapore Fintech Festival. During her speech, Lagarde outlined how digital currencies issued by central banks could help achieve three key public policy goals: financial inclusion, security and consumer protection, and privacy in payments.
Although improved privacy was included as a potential benefit of these hypothetical digital currencies, Lagarde’s own comments regarding the level of anonymity likely to be offered by these central bank-issued tokens indicate they won’t be able to compete with bitcoin and other cryptocurrencies in this regard.
“Semi-Anonymous” is Not Anonymous
During her speech, Lagarde noted some of the legally-acceptable reasons as to why someone may desire more privacy in their online transactions such as the prevention of consumer tracking and avoiding exposure to hacking. However, she also made it clear that completely anonymous digital currencies are unlikely to be created by central banks.
“Would central banks jump to the rescue and offer a fully anonymous digital currency? Certainly not. Doing so would be a bonanza for criminals,” said Lagarde.
Lagarde’s recommendation of a backdoor for the “semi-anonymity” provided by these digital currencies became clear in another part of the speech.
“When I purchase my pizza and beer, the supermarket, its bank, and marketers would not know who I am,” explained Lagarde. “The state might not either, at least by default. Anti-money laundering and terrorist financing controls would nevertheless run in the background. If a suspicion arose it would be possible to lift the veil of anonymity and investigate.”
These sorts of backdoors are dismissed as bad ideas that undermine consumer security by most technologists, which is why the Institute of Electrical and Electronics Engineers (IEEE) came out against such practices earlier this year.
This is Why Bitcoin Has Value
Of course, these sorts of backdoors are not found in permissionless, open-source cryptocurrencies like bitcoin. While bitcoin is far from private today, the technology is moving in a more anonymous direction with advancements such as Confidential Transactions and ZeroLink — not to mention off-chain protocols such as the Lightning Network. Of course, privacy-focused altcoins, such as monero and zcash, already exist too.
The IMF's @Lagarde favors crypto-currencies! But, don't think "Bitcoin." She wants government controlled cryptos to reduce your access to and use of cash. This is the real future: https://t.co/Gb4UCl0DrU— Jim Rickards (@JamesGRickards) November 14, 2018
The fact that central banks are unlikely to ever develop permissionless, anonymous forms of ecash is part of the reason bitcoin was created in the first place and part of what provides its intrinsic value. The sorts of backdoors Lagarde spoke about on Wednesday simply have no place in Bitcoin.
Additionally, there are other types of backdoors, such as negative interest rates or account blacklisting, that central banks may want to include in their own digital creations.
All of these potential backdoors point to there being value in a permissionless, open-source form of digital money like bitcoin.