CBDC Stealth Mode: Unraveling The Privacy Puzzle Of A U.S. CBDC

US Treasury official, Graham Steele, emphasizes the advantages of a retail CBDC backed by the Federal Reserve, providing safety during bank runs and stabilizing private sector lending.

Striking The Anonymity Balance

During a recent Texas payments conference, Graham Steele highlighted the significance of anonymity when contemplating the development of a future Central Bank Digital Currency in the United States.

Emphasizing the importance of privacy and anonymous transactions, Steele expressed the need to incorporate these considerations into the design of a digital dollar.

Speaking on June 13 at a conference focused on payments, the Assistant Secretary for Financial Institutions at the Treasury Department discussed the Federal Reserve’s controversial FedNow system and the potential implementation of CBDCs.

Steele stressed the necessity of addressing the preservation of privacy and anonymity, calling for an exploration of available technologies and methods, such as Privacy Enhancing Technologies, to ensure such protections are included in the potential design of a retail Central Bank Digital Currency.

In his speech, he carefully assessed the advantages and risks of a prospective Central Bank Digital Currency, recognizing its potential to foster a competitive payment landscape.

Exploring The Potential Of A Retail CBDC

Steele highlighted the potential advantages of a retail CBDC directly backed by the Federal Reserve. According to Steele, such a digital currency could offer a safer alternative for consumers during bank runs, potentially mitigating the risk of destabilizing private-sector lending.

Drawing attention to recent banking crises, Steele noted that access to non-deposit alternatives outside the traditional banking system may have influenced the nature and speed of bank runs. While the United States has yet to make a definitive decision regarding pursuing a CBDC, a dedicated group led by the Treasury is currently evaluating the implications of introducing a Central Bank Digital Currency within the country.

Steele explained that this evaluation encompasses various policy objectives, including global financial leadership and national security considerations.

Turning to the Federal Reserve’s FedNow instant payments system, Steele expressed support for fostering multiple payment options; he thinks it may promote choice, competition, and resilience within the payments ecosystem. He anticipates that such an environment would encourage the development of innovative payment services and features.

However, the FedNow system has faced opposition from political figures. Robert F. Kennedy Jr. and Ron DeSantis, both presidential hopefuls, argue that its implementation could pave the way for a CBDC, which they believe would grant excessive control to the government.

In April, Federal Reserve Board governor Michelle Bowman expressed skepticism about the widespread justification of a CBDC beyond its application in interbank and wholesale transactions, deeming it challenging to envision its broader use.