The Federal Reserve plans to consider the idea of launching a U.S. digital currency. Central bank digital currencies are a hot topic among monetary-policy makers world-wide. More than 80 countries, representing 90% of the world’s gross domestic product, are looking into the technology. But these currencies come with serious risks. Without additional privacy measures, central bankers shouldn’t establish them.

You are likely familiar with privately issued digital dollars, such as electronic balances in checking accounts. Central bank digital currencies are similar, except the liability is on the central bank, rather than private banks. One benefit of tying digital currencies to a central bank is that payments would also be processed by central banks, strengthening national and international payments systems and potentially lowering transaction costs. They could also address economic inequality by offering the “unbanked” a way to access the financial system via a direct account with the central bank.

But too often digital currency enthusiasts focus on the good and ignore the bad. Central bank digital currencies are a perfect example of what Yale political scientist James C. Scott calls the “seeing like a state” mentality. Governments have strong incentives to simplify society for the purpose of social control. Bringing commerce within a centrally managed payment system is a textbook example. If widely used, these currencies would give central banks unprecedented power over the financial system. Without additional safeguards, virtually all transactions would be a matter of public record. Financial privacy would be difficult to maintain. Also, since this currency would be a liability of the Fed, the Fed could place conditions on its use to nudge users in desired directions.

Imagine your digital balance shrinking slowly over time to motivate rapid consumer spending. Or the Fed blocking payments to politically disfavored businesses. This isn’t a huge stretch: The Fed has already involved itself in social and environmental policy. It is souping up initiatives for supporting economic “equity” and quietly pressuring banks to disclose their plans for mitigating climate-change risk. The temptation to manage a central bank digital currency in line with these agendas would be strong.

For these reasons, some central bankers, such as Fed Gov. Christopher Waller, oppose creating their own digital currency. In a recent speech, Mr. Waller emphasized concerns about privacy and government control of payments. One of his comparisons is highly illustrative: China, the major economy that has made the greatest strides toward a central bank digital currency, could use that technology “to more closely monitor the economic activity of its citizens.”

Perhaps constitutional safeguards in the U.S. would prevent the Fed from abusing its oversight of a digital currency. But it is unwise to put the government in that position. All the benefits of this technology can be achieved through alternative and narrowly targeted policies. The costs, however, could be extreme. As Edmund Burke once said, “The thing itself is the abuse.” The best way to prevent a financial panopticon is to not build it at all.