Financial profiling with digital central bank currencies: what it means and what risks are associated with it

Financial profiling with digital central bank currencies: what it means and what risks are associated with it

Financial Profiling Understand

In the Financial Profiling, the financial data of a person are collected and analyzed in order to provide insights into their expenditure habits, investment prices and their general financial behavior. The data collected can include transaction history, income, assets, debts and more.

The information collected is then used to create a detailed profile of a person's financial activities that enables institutions to make sound decisions and make predictions about financial behavior.

Risks of financial profile creation with CBDCS

CBDCs promise a lot of good for the development of financial system and governance. Like all other advantages, however, you also have your own disadvantages. Some important examples of this are the following:

1. Consists of data protection

central managers have the potential to significantly increase the monitoring of the financial transactions of individuals. Since they are centralized, central banks or government agencies can monitor and pursue any transaction made with the digital currency. This extent of the surveillance thrives concerns about privacy and possible abuse of power.

2. Targeted advertising and marketing

The creation of financial profiles enables institutions to gain deep insights into the preferences, output behavior and the investment decisions of people. In the wrong hands, this information can be used by advertisers and marketers to address people with highly personalized and potentially manipulative advertising. This raises ethical concerns about the use of personal financial data for commercial purposes.

3. Discrimination and exclusion

The creation of financial profiles has the potential to tighten existing inequalities and create new forms of discrimination. If financial institutions or governments use profiling to determine access to credit, loans or other financial services, it can be difficult for people from marginalized communities or with limited financial experience to receive these services. This can maintain social and economic inequalities.

4. Security risks

centralized databases in which large amounts of financial data are stored are attractive destinations for hackers and cybercriminals. A single gap in the system could lead to massive data leaks or financial fraud. And if the CBDC wallet is compromised by a person, all of their financial history and assets can be in danger.

5. Loss of financial independence

When creating financial profiles, individuals can feel that their financial decisions are influenced or controlled by external bodies. The fear of being monitored and the potential consequences, if one deviates from the established financial patterns, can lead to self -censorship and loss of financial autonomy.

FAZIT

CBDCs offer numerous advantages such as more efficiency and financial inclusion, but the risks associated with the creation of financial profiles must not be overlooked. It is important to find a balance between the use of the potential of digital currencies and the protection of the privacy and autonomy of the individual.