Finance Officer: Privacy Should Be Considered in ‘Potential Retail CBDC’

According to an official with the United States Department of the Treasury, privacy and anonymous transactions are important factors to consider when designing digital dollars. Speaking at a conference in Texas focused on payments, Graham Steele, Assistant Secretary of Financial Institutions at the Department of the Treasury, discussed the Federal Reserve’s FedNow system and central bank digital currency (CBDC).

Steele highlighted the challenge of balancing minimizing illegal transactions with preserving user privacy in retail CBDCs. He stressed the importance of considering privacy preservation and anonymity and exploring technologies such as Privacy Enhancement Technology to enable appropriate protections in potential retail CBDC designs.

In his speech, Steele weighed in on the benefits and risks of CBDC. He noted that retail CBDCs, which will be directly backed by the Federal Reserve, could offer consumers a safer alternative as long as banks are running potentially undermining private sector lending. Steele referred to the recent banking crisis and stated that the availability of non-deposit alternatives outside the traditional banking system may have changed the nature and pace of bank runs.

While the United States has yet to decide whether to pursue a CBDC, a group led by the Department of the Treasury is currently evaluating the implications of such a digital currency in the country. This evaluation covers policy objectives related to global financial leadership, national security, privacy, illicit finance, and financial inclusion.

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

It should be noted that there is political opposition to the FedNow system. Presidential candidate Robert F. Kennedy Jr. and Ron DeSantis have expressed concern, arguing that it could pave the way for CBDCs and give the government too much control.

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

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