U.S. Treasury examines privacy concerns in retail CBDC

• Graham Steele, Assistant Secretary for Financial Institutions, underlined the potential risks of a retail CBDC.
• Steele believes that having several options for payment operations promotes competition in payments.

The U.S. Treasury Department is looking into ways to keep retail transactions in a potential digital dollar as private and anonymous as possible, said Graham Steele, the Assistant Secretary for Financial Institutions.

He added that the U.S. hasn’t yet determined whether to go ahead with a central bank digital currency (CBDC).

Steele, at the Transform Payments USA 2023 Conference held in Texas, also said

“It is important that we consider the extent to which privacy and anonymity might be preserved and explore the technologies and methods available, including Privacy Enhancing Technologies (PETs), to enable such protections in the design of any potential retail CBDC.”

Steele believes that having several options for payment operations promotes competition in payments. This will encourage the creation of new payment services and features while also improving payment system resiliency. He made the comments while talking about Fed’s FedNow instant payments system.

Federal Reserve Board Governor Michelle Bowman stated in April that it would be difficult to imagine that a CBDC could be justified for purposes other than interbank and wholesale transactions.

Retail CBDC has its risks, official says

Steele also underlined the potential risks of a retail CBDC, including the risk of runs. A Treasury-led panel investigating the feasibility of a U.S. CBDC is weighing policy objectives such as global financial leadership, national security and privacy, illicit finance, and financial inclusion.

The recent banking upheaval in the country demonstrated that the technology facilitating the movement of deposits is only getting faster. This will increase the risk of high-speed, panic-driven fund movement.

The same day, Treasury Secretary Janet Yellen testified before the House Financial Services Committee, telling legislators that she’s still worried about regulatory gaps in the management of the spot market in non-securities digital assets and stablecoins.

She stressed that the crypto industry needs a comprehensive federal prudential framework and if a framework can come up, it will work with Congress.