Privacy and anonymity should be taken into account in the development of a potential retail Central Bank Digital Currency (CBDC), according to a U.S. Treasury official. Speaking at a payments-focused conference in Texas, the Treasury Department’s Assistant Secretary for Financial Institutions, Graham Steele, said that one of the challenges in developing a retail CBDC is to minimize illegal transactions while preserving user privacy. He suggested that Privacy Enhancing Technologies should be considered for their ability to preserve user anonymity.
Steele weighed the pros and cons of a potential CBDC, claiming that it could foster a competitive payment environment. However, he also highlighted that a retail CBDC that is directly backed by the Federal Reserve could provide a safer option for consumers during bank runs, which could potentially destabilize private sector lending. Steele noted that the U.S. has not yet decided whether to pursue a CBDC, but a Treasury-led group is examining the implications of such an initiative. This includes evaluating policy objectives related to global financial leadership, national security, privacy, illicit finance, and financial inclusion.
Steele also discussed the Fed’s controversial instant payment system, FedNow, believing that it promotes choice and competition in payments, ultimately driving the development of new payment services and features while enhancing the resilience of the payment system. Despite the apparent benefits of the FedNow system, it has faced political resistance from presidential hopefuls Robert F. Kennedy Jr. and Ron DeSantis, who argue that it could pave the way for a CBDC and give the government too much control.
On the other side of the fence, Federal Reserve Board governor Michelle Bowman stated earlier this year that it was “difficult to imagine” that a CBDC could be justified beyond use in “interbank and wholesale transactions.”
With thoughtful consideration and development, a potential retail CBDC could strike a balance between fostering a competitive payment environment and preserving user privacy. However, it is essential that both the advantages and risks are thoroughly examined before implementing such an initiative.
Source: Cointelegraph
