A US Treasury Department official warns of the risk of privacy violations in the possible launch of a central bank digital currency (CBDC).
In a new speech at the Transform Payments USA 2023 conference in Texas, Graham Steele, the U.S. Treasury Department’s Assistant Secretary for Financial Institutions, says CBDCs pose a significant challenge to user privacy.
“An additional challenge is protecting users’ privacy and minimizing the risks of illegal financial transactions. Fulfilling both important objectives requires a careful balance in the design of a potential retail CBDC.”
He says there are already segments of the population that are suspicious of institutions that keep them alienated from the banking system and a CBDC would likely increase that distrust.
“Privacy concerns and lack of institutional trust are already among the most cited reasons why some individuals avoid the banking system. In particular, as Treasury has previously noted, some communities may be more privacy sensitive and have greater concerns about private or public entities having access to their personal information.
Steele says any potential CBDC launch should explore the use of privacy technologies to build user trust.
“In this spirit, it is important that we consider the extent to which privacy and anonymity can be preserved and explore available technologies and methods, including Privacy Enhancing Technologies (PETs), to enable such protections in the design of potential CBDC for the retail.
Such technologies could play a vital role in maintaining transaction privacy while ensuring transparency and traceability, enhancing user confidence in digital financial transactions.”
He notes that while the United States has not yet decided whether it will pursue a CBDC, the Treasury Department is already leading an interinstitutional working group to study the implications of a potential central bank digital currency.
“The working group evaluates policy objectives related to global financial leadership, national security and privacy, illicit financing and financial inclusion.
Striking the right balance between these priorities, and realizing potential benefits while minimizing risk, would depend on both policy and technology design.”
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