Treasury Official: Privacy Should be Considered in ‘Potential Retail CBDC’ 

According to a United States Treasury official, privacy and anonymous transactions are crucial factors that should be considered when designing a digital dollar. Speaking at a conference in Texas focused on payments, Graham Steele, the Assistant Secretary for Financial Institutions at the Treasury Department, discussed the Federal Reserve’s FedNow system and central bank digital currencies (CBDCs).

Steele highlighted the challenge of balancing minimizing illegal transactions with preserving user privacy in a retail CBDC. He emphasized the importance of considering the preservation of privacy and anonymity and exploring technologies such as Privacy Enhancing Technologies to enable appropriate safeguards in the design of any potential retail CBDC.

During his speech, Steele weighed the benefits and risks of a CBDC. He noted that a retail CBDC, which the Federal Reserve would directly back, could offer consumers a safer alternative during bank runs that have the potential to destabilize private sector lending. Steele referred to the recent banking crisis and suggested that the availability of non-deposit alternatives outside of the traditional banking system may have altered the nature and speed of bank runs.

Although the United States has not yet decided to pursue a CBDC, a group led by the Treasury is currently evaluating the implications of such a digital currency in the country. This evaluation encompasses policy objectives related to global financial leadership, national security, privacy, illicit finance, and financial inclusion.

Steele also shared his views on the Fed’s FedNow instant payments system. He believes that having multiple options for payment operations promotes choice and competition, which, in turn, encourages the development of new payment services and features while also enhancing the resilience of the payments system.

It is worth noting that there has been political opposition to the FedNow system. Presidential hopefuls Robert F. Kennedy Jr. and Ron DeSantis have expressed their concerns, arguing that it could pave the way for a CBDC and grant excessive control to the government.

In April, Federal Reserve Board governor Michelle Bowman expressed skepticism about the justification for a CBDC beyond its use in interbank and wholesale transactions, stating that it was “difficult to imagine” broader justifications for its implementation.

As discussions surrounding the design and implementation of a digital dollar continue, considerations for privacy, user anonymity, and the potential benefits and risks of a CBDC remain at the forefront of the evaluation process led by the United States Treasury.