The U.S. government is showing respect for privacy and has no preference for central bank-issued digital money. President Donald Trump held back the creation of CBDCs on the grounds of privacy. Nevertheless, the Treasury Department and the Bank of International Settlements are already working on how to make stablecoins an easy-to-use surveillance mechanism.
****Summary****
While the U.S. had been in opposition to the development of CBDCs because they could violate privacy, the Treasury Department is considering avenues to examine blockchain monetary information.
Economists at the Bank of International Settlements proposed applying an AML compliance score.
They are likened to China's social credit system by critics.
There is no fighting on-chain criminal behavior without infringing on privacy, according to analysts at a16z.
The U.S. Treasury Department wants to track stablecoin transactions
The Department of the Treasury is looking for ways to obtain stablecoin transaction data. In the public comment request published on Aug. 18, the Treasury Department calls "interested members of the public" to comment on potential means (methods and techniques) of "detect and mitigate illicit financial risks involving digital assets." The request is signed by executive secretary Rachel Miller. The Treasury Department welcomes public comments until Oct. 17, 2025.
As stated by Miller, the purpose of permitting the government to gain access to the monetary data is to comply with the mandates of the GENIUS Act. The GENIUS Act was signed into law by President Donald Trump on Jul. 18, 2025. The legislation establishes the legal framework for issuers of stablecoins and safeguards consumers from possible wrongdoing.
Because the GENIUS Act classifies stablecoin issuers as financial institutions, all federal legislation governing such institutions now also applies to stablecoins.
Miller mentioned several areas for possible data monitoring (most of this data are linked to AML functionality, sanctions compliance, and identity verification). These are application programming interfaces, AI-based solutions, identity verification, etc.
The report particularly invites suggestions on surmounting regulatory, operational, and legislative challenges to employing identity verification to identify illegal conduct. It also invites suggestions on how blockchain data can be combined with off-chain data and inquires about the primary challenges to employing blockchain analytics. Although Miller states privacy protection, such information makes known the deanonymization of transactional data by the U.S. Treasury.
****Privacy vs. security****
The Treasury is going to fight against illicit activity by introducing zero-knowledge digital credentials to DeFi users, according to Timothy Massad, the former Chairman of the Commodities Futures Trading Commission. The credentials will mask data from all, but the information will be accessed via authorities' requests. Without credentials, smart contracts would not execute transactions, Massad said.
In an article devoted to myths of privacy on blockchain, David Sverdlov and Aiden Slavin from a16z ventured that combat of illicit on-chain activity comes only in the expense of privacy infringement. They enumerate potential privacy trade-offs. Consumers may perhaps be required to give voluntary and involuntary selective de-anonymization of transaction information in order to establish the authenticity of transactions or deposited funds. Other means involve withdrawal and deposit screenings.
the current dependence on known intermediaries in anti-money laundering does not cooperate efficiently with decentralized public blockchains. According to them, the blockchain information must be examined closely to combat money laundering.
develop an AML compliance score based on the risk of involvement of the transacted tokens in illegal activity. The score could be utilized in blocking or restricting transactions in the crypto-to-fiat exchanges via banks. The Rage reporter, Lola Leetz, asserts that the use of digital IDs for blockchain-based services will make permissionless networks permissioned ones.
ZeroHedge media equates AML compliance score with Chinese social credit points. It asserts:
"None of [this] should surprise anybody (unless you really believed that there would be no CBDCs in the US). We've long said we expect the on-ramps and off-ramps to be heavily regulated and KYC-ed as the crypto-economy becomes a bigger component of the global financial system."
Digital ID goes against past actions of the Trump Administration
President Donald Trump banned the creation, issuance, and distribution of the digital dollar by executive order on Jan. 23, 2025. Therefore, the world reserve currency was barred from going digital. While stablecoins pegged to the price of the American dollar, digital dollars would have been tokenized dollars.
The prohibition of CBDC was primarily justified by the government's fear for citizens' privacy, which might have been compromised if the U.S. permitted the establishment of the digital dollar.
USD stablecoins are offered as a private option against CBDCs, since stablecoins are not explicitly attached to the government. But it appears the U.S. government does not care about having a means for financial spying.
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