Privacy should be considered in ‘potential retail CBDC’ – Treasury official

A United States Treasury official has said that privacy and the ability to transact anonymously should be considered in the design of a digital dollar.

Graham Steele, assistant secretary for financial institutions at the Treasury Department on June 13. spoke at a payments-focused conference in Texas about the Federal Reserve’s controversial FedNow system and central bank digital currencies (CBDCs).

Steele said that one of the challenges of retail CBDCs is reducing illegal transactions while maintaining user privacy. He added that there are still considerations to be made about how best to protect user anonymity:

“It is important that we explore the extent to which privacy and anonymity can be protected and the available technologies and methods, including privacy-enhancing technologies, to enable such protection in the design of any potential retail CBDC “

In his remarks, Steele weighed the benefits and risks of a potential CBDC, saying it could foster a “competitive payments environment.”

On the other hand, a retail CBDC would be directly backed by the Fed and could provide a safe alternative for consumers during a bank run that “could destabilize private sector lending,” according to Steele.

He pointed to the recent banking crisis and said that “access to non-deposit options outside the banking system would have changed the nature and pace of bank runs.”

He added that the US “has not yet determined whether it will pursue a CBDC” but that a Treasury-led group is evaluating the implications of a potential CBDC for the country.

Steele said the assessment included looking at “policy objectives relating to global financial leadership, national security and privacy, illicit finance and financial inclusion”.

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On the Fed’s FedNow instant payment system, Steele believes that having multiple options for payment operations “promotes choice and competition in payments” which he believes will increase the flexibility of the payment system. as well as encourage the “development of new payment services and features”.

FedNow has seen political pushback. Presidential candidates Robert F. Kennedy Jr. and Ron DeSantis are against the system, claiming it will pave the way for a CBDC, which both claim will cede too much control to the government.

In April, Federal Reserve Board Governor Michelle Bowman said it was “difficult to imagine” that a CBDC could be justified beyond use in “interbank and wholesale transactions.”

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