During a payments-focused conference in Texas on June 13, 2023, Graham Steele, the US Treasury Department’s Assistant Secretary for Financial Institutions, addressed the Federal Reserve’s contentious FedNow system and the potential implementation of central bank digital currencies (CBDCs) in the United States.
Steele highlighted a crucial challenge in developing a retail CBDC –the need to strike a balance between preventing illegal transactions and preserving user privacy. He underscored the importance of privacy and the option for anonymous transactions in shaping the design of a digital dollar. Steele suggested incorporating measures to protect user anonymity and preserve privacy in the design; he recommended exploring technologies like Privacy Enhancing Technologies (PETs) to achieve these goals.
According to Steele:
“Such technologies could play a crucial role in maintaining transactional privacy while also ensuring transparency and traceability, thus reinforcing the trust of users in digital financial transactions.”
Steele also emphasized the significance of offline capabilities in any potential CBDC design. He stressed that this aspect would enhance resiliency and promote financial inclusion by enabling transactions in regions with limited or no internet connectivity.
Moreover, Steele argued that a retail CBDC directly backed by the Federal Reserve could provide a safer alternative for consumers during bank runs. He cited recent banking crises as evidence and suggested that the availability of non-deposit alternatives outside the traditional banking system may have influenced the nature and pace of such crises.
Though he acknowledged that the United States government is yet to declare its stance on pursuing a CBDC, Steele mentioned a Treasury-led group currently evaluating the potential implications of adopting a retail CBDC.
In a Senate Banking Committee hearing in February 2023, Daleep Singh, former Deputy National Security Advisor for International Economics, highlighted the significant impact that introducing a CBDC would have on the country’s cryptocurrency industry. Singh noted that regulating digital assets and establishing a digital dollar would help mitigate vulnerabilities in the crypto ecosystem and reduce the risk of exploitation.
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