Yesterday, the U.S. Treasury’s Assistant Secretary for Financial Institutions, Graham Steele, delivered remarks on the digitization of financial services, honing into central bank digital currencies (CBDCs). Mr. Steele said that Treasury is leading an interagency working group to complement the work of the Federal Reserve and consider the broader implications of any potential U.S. digital dollar. He referred to the challenge of protecting user privacy while minimizing financial crime and the potential of offline capabilities to enhance resilience and financial inclusion.
Treasury’s CBDC work
The U.S. Treasury has been working on assessing the risks and benefits of digital currencies for financial sector stability and other policy objectives.
During his speech, Mr. Steele considered two key focus areas. First, he talked about the now-familiar challenge of protecting user privacy, noting that minimizing the threat of illicit financial transactions will require careful design considerations. Privacy has long been a contentious issue among U.S. citizens, making individuals especially wary of a future digital dollar.
“In this vein, 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,” said Mr. Steele.
He then referred to offline capabilities, something that could become crucial for certain marginalized communities. Mr. Steele noted that many individuals live in areas with limited internet connectivity or face barriers to mainstream banking services, so considering these needs will be essential to enhance financial inclusion. An offline CBDC could also ensure payment resiliency in emergency situations such as extended outages.
The Bank of Korea has recently announced a partnership with Samsung to explore such applications. And the BIS has published a book on the topic.
More generally, the Treasury sees retail CBDCs as likely contributing to things such as efficient payments and financial inclusion but also recognizes the risk of potentially facilitating bank runs and destabilizing private sector lending. Its working group is trying to identify these trade-offs and find ways to reconcile policy objectives, by striking the right balance between priorities.
