In a recent speech at a payments conference in Texas, Graham Steele, a representative of the U.S. Treasury, emphasized the need for privacy when designing a potential retail central bank digital currency (CBDC) in the United States. Steele, who is the assistant secretary for financial institutions at the Treasury Department, expressed concerns about reducing unlawful transactions while also protecting customer privacy.
Steele highlighted the importance of considering the degree of privacy and anonymity that can be maintained in the architecture of a retail CBDC. He urged the exploration of technologies and approaches, including Privacy Enhancing Technologies, that can provide the necessary safeguards for user anonymity. By incorporating these measures, a potential retail CBDC can strike a balance between combating illegal activities and preserving individual privacy.
During his speech, Steele discussed the advantages of a CBDC, noting that it could foster a competitive payment environment. He also mentioned that a retail CBDC, directly backed by the Federal Reserve, could provide consumers with a safer alternative during bank runs, which have the potential to destabilize private sector lending. Steele referred to the recent banking crisis and suggested that access to non-deposit alternatives outside of the banking system could have changed the nature and speed of such bank runs.
Although the U.S. Treasury is currently analyzing the implications of a potential CBDC in the country, no decision has been made yet regarding its pursuit. Steele mentioned that the assessment takes into account various policy objectives, such as global financial leadership, national security, privacy, illicit finance, and financial inclusion.
Steele also touched upon the FedNow system, the Federal Reserve’s rapid payment system, during his speech. He expressed support for having a variety of payment methods, stating that it promotes choice and competition in payments. This, in turn, can lead to the development of new payment services and features, enhancing the robustness of the payments system.
It’s worth noting that some politicians, like Ron DeSantis and Robert F. Kennedy Jr., have expressed concerns about the FedNow system, as they believe it could pave the way for a CBDC and give the government excessive authority. However, Michelle Bowman, governor of the Federal Reserve Board, stated in April that it would be hard to justify a CBDC for anything other than interbank and wholesale transactions.
In conclusion, Steele’s remarks underscore the importance of considering privacy when designing a potential retail CBDC in the United States. By finding the right balance between privacy and combating unlawful activities, a retail CBDC could provide consumers with a competitive and secure payment alternative. However, further analysis and deliberation are needed before a decision is made regarding the pursuit of a CBDC in the country.