Central Bank Digital Currencies and the Fourth Amendment
By Ashley Tighe (QST ’26)
For decades, central banks worldwide have had exclusive or near exclusive control over their territories’ monetary policies and the money supply. The central bank’s goal is to enable economic prosperity and prevent economic collapse by gaining public trust by being transparent and holding themselves accountable. 1 In recent years, technology and the internet have become integral parts of shaping the economic landscape in the United States. New types of currencies have emerged that do not require a bank or financial institution to verify and secure transactions, and they are digitally native. 2 Digital currencies, such as Bitcoin, work as a medium of exchange through a computer network, enabling anyone at any time to send and receive payments. 3 However, with the rise of digital currencies, there have been growing concerns regarding the security and confidentiality of users’ financial information. 4 Transactions on blockchain networks are recorded on public records, and while they are encrypted, it is still possible for information to be traced back to individual users. 5 The lack of regulatory oversight also raises concerns that digital currencies could be used for illicit purposes. 6 While digital currencies have gained traction and highlight both the opportunities and challenges in the modern financial landscape, governments are now assessing how to respond to these advancements. In particular, the US Federal Reserve is considering whether they should pursue their own Central Bank Digital Currency (CBDC) by exploring the pros and cons of implementing one. 7 While officials argue that a CBDC would enable the modernization of financial institutions and increase the efficiency of digital payments to the public, 8 there are still questions on how to balance innovation and the public’s privacy protection under the Fourth Amendment.
The Fourth Amendment in the U.S. Constitution “protects privacy by governing how government officials may surveil people’s effects, including their electronic data.” 9 This amendment has been a safeguard against unreasonable searches and seizures, making sure that the government follows due process before accessing personal information. 10 In 1970, Congress passed the Bank Secrecy Act, which states the government generally needs a warrant to access people's personal financial information from banks. 11 This acts as a critical legal precedent that provides people with financial privacy protections, as banks act as an intermediary to create a buffer between individuals and the government. These intermediaries are required to uphold certain privacy standards that limit the government from directly accessing a person's personal financial data without legal justification. However, if the government implements a CBDC, it would gain unprecedented access to the public’s financial data without the same protections that currently exist in the established banking system. 12
If a CBDC were created, it would be a digital asset that is directly issued by the US Federal Reserve. 13 The direct relationship between people and a CBDC wouldn’t require the traditional banking safeguards provided by the third parties. This could allow the government to monitor people’s financial transactions on demand, from everyday purchases like food to major investments. 14 Many fear that without traditional safeguards in place, individuals’ financial activities could be scrutinized without a probable cause, a warrant, or any other legal oversight. 15 The government could use this financial information to target individuals for political beliefs, associations, or to study their spending habits. 16
As the Federal Reserve explores introducing CBDC, it is important for lawmakers to research individual financial privacy, security, and transparency to maintain public trust. A CBDC causes fear of fundamental rights being violated. Governments must be cautious to ensure that innovation does not lead to the violations of the basic rights that protect citizens from the government in the digital age.
Works Cited
“Tobias Adrian, “Central Bank Independence: Why It’s Needed and How to Protect It” (speech, Bank of Thailand Annual Retreat, June 14, 2024), International Monetary Fund, https://www.imf.org/en/News/Articles/2024/06/17/sp061424-central-bank-independence.
Dimitrios Psarrakis, “Disintermediation Economics: An Introduction,” in Disintermediation Economics: The Impact of Blockchain on Markets and Policies, edited by Eva Kaili and Dimitrios Psarrakis (n.p.; Palgrave Macmillan, 2021): 2–3.
Olivia Solon, “A Simple Guide to Bitcoin,” Wired, March 27, 2017, https://www.wired.com/story/bitcoin-101/.
See generally, Guneet Kaur, “Privacy Implications of Central Bank Digital Currencies (CBDCs): A Systematic Review of Literature,” EDPACS 69, no. 9 (2024): 87–123, https://doi.org/10.1080/07366981.2024.2376794.
See generally, Perri Reynolds and Angela S.M. Irwin, “Tracking Digital Footprints: Anonymity within the Bitcoin System,” Journal of Money Laundering Control 20, no. 2 (2017): 172–189, https://doi.org/10.1108/JMLC-07-2016-0027.
Kaur, “Privacy Implications,” 100.
“Central Bank Digital Currency,” Federal Reserve Board, last updated August 2, 2024, https://www.federalreserve.gov/central-bank-digital-currency.htm.
Christian Barontini and Henry Holden, “Proceeding with Caution — a Survey on Central Bank Digital Currency,” (BIS Paper Series 101, January 8, 2019): 8–10, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3331590.
“Fourth Amendment,” Electronic Privacy Information Center, https://epic.org/issues/privacy-laws/fourth-amendment/#:~:text=The%20Fourth%20Amendment%20to%20the,effects%2C%20including%20their%20electronic%20data.
Legal Information Institute, “Fourth Amendment,” Cornell Law School, https://www.law.cornell.edu/wex/fourth_amendment.
Bank Secrecy Act of 1970, Pub. L. No. 91-608, 84 Stat. 1114, 1123–1124.
Kaur, “Privacy Implications,” 98 (in the context of the United Kingdom).
“Central Bank Digital Currency.”
Kaur, “Privacy Implications,” 98.
See, e.g., Ron DeSantis, interview by Tucker Carlson, 2023 Family Research Summit, C-SPAN, July 14, 2023, https://www.c-span.org/video/?529323-7/gov-ron-desantis-speaks-2023-family-leadership-summit#.
DeSantis, interview.