As the United States grapples with the concept of introducing a Central Bank Digital Currency (CBDC), the U.S. Treasury Department has been exploring ways to protect the privacy and anonymity of retail transactions within a potential digital dollar. According to Graham Steele, the assistant secretary for financial institutions, the use of Privacy Enhancing Technologies (PETs) could play a pivotal role in preserving transactional privacy, while ensuring adequate transparency and traceability.
Addressing the Transform Payments USA 2023 Conference in Texas, Steele shared that the U.S. has yet to reach a decision on the implementation of a CBDC. The idea of preserving privacy and anonymity within the system is being studied, particularly through the use of technological advancements such as PETs. However, it is essential not to overlook the possible risks associated with a retail CBDC.
One of the primary concerns Steele raised is the dangers of runs in the financial market. The recent banking turmoil in the U.S. demonstrated how rapidly deposits can be moved, thereby increasing the chances of high-speed, panic-driven movements of funds. As part of the evaluation process, a Treasury-led group is investigating policy objectives within the spheres of global financial leadership, national security, privacy, and financial inclusion, as well as the problems of illicit finance.
Simultaneously, Treasury Secretary Janet Yellen conveyed her apprehensions to the House Financial Services Committee about regulatory gaps in the oversight of non-securities digital assets and stablecoins. This raises further questions about the integration of a potential CBDC into the existing financial ecosystem. Yellen argued that the crypto sector requires a comprehensive federal prudential framework, expressing her willingness to work with Congress to develop such a regulatory structure.
Although the prospect of a U.S. CBDC is still in the early stages, it is crucial to weigh the potential benefits and challenges that come with this innovation. As technology advances, striking an effective balance between privacy and transparency in retail transactions will be fundamental to the success of a digital dollar. Nevertheless, overcoming regulatory hurdles and addressing the risks related to a retail CBDC are top priorities for policymakers before any final decisions can be made.
Source: Coindesk
