US Treasury official examines privacy implications of retail central bank digital currency

The US Department of the Treasury is exploring the privacy implications of a potential retail central bank digital currency (CBDC), according to Graham Steele, assistant secretary for financial institutions at US Treasury. Speaking at the Transform Payments US 2023 Conference in Texas, Steele said a retail CBDC could have both benefits and drawbacks, with privacy being a significant challenge to consider.

Main body

Steele emphasized the importance of examining the extent to which privacy and anonymity can be preserved in any potential retail CBDC, and urged exploration of available technologies such as Privacy Enhancing Technologies (PETs) to enable such protections in the design of any potential retail CBDC. Steele also stated that the US has not yet decided whether to pursue a CBDC.

A retail CBDC could support financial inclusion and preserve the face value redemption of the currency, but it could also destabilize private sector lending and create privacy concerns, according to Steele. He highlighted that protecting user privacy while minimizing the risks of illicit financial transactions requires a careful balance in the design of any potential retail CBDC.

The debate over CBDCs has become divisive in the US, with some government leaders calling for a ban. Last month, Florida Governor Ron DeSantis, now a Republican presidential candidate, signed a bill banning CBDCs, stating that the move to establish a central bank digital currency is an attempt to surveil and control the finances of Americans. DeSantis tweeted in March that a CBDC would violate privacy, limit consumer choice and undermine market competitiveness.

Republican Sen. Ted Cruz of Texas has also proposed banning the US Federal Reserve from issuing a CBDC. In March 2022, he introduced a bill that would ban the Fed from developing a direct-to-consumer CBDC.

While a retail CBDC could bring benefits such as financial inclusion and preserving the face value redemption of the currency, it could also pose challenges related to privacy. The US Treasury is considering the issue and exploring technologies such as PETs to enable privacy protections in the design of any potential retail CBDC. However, some government leaders have called for a ban on CBDCs, citing concerns about privacy violations and market competitiveness. A careful balance must be struck between protecting user privacy and minimizing the risks of illicit financial transactions in any potential retail CBDC design.