Privacy Concerns Hinder CBDC Acceptance, Says Key Organization

• Privacy as a Core Component in CBDC Design, Reports Bank for International Settlements
• Prospective CBDC Users Demand Privacy
• Privacy and CBDCs: A Complex Relationship
• CBDCs: A Popular Choice for Offline and Online Purchases
• CBDCs versus Stablecoins
• Further Reading: The Unfulfilled Promise of Stablecoins

Privacy as a Core Component in CBDC Design, Reports Bank for International Settlements

A recent report by the Bank for International Settlements (BIS) has identified privacy as a crucial element in the design of Central Bank Digital Currencies (CBDCs). With increasing interest in CBDCs, central banks around the globe have been considering the possibility of creating digital versions of their respective national currencies. CBDCs, often referred to as 'digital dollars', are envisaged to leverage blockchain technology, a revolutionary ledger system that traces its roots to the world of cryptocurrency, where privacy is highly valued.

Prospective CBDC Users Demand Privacy

A new BIS study indicates that prospective CBDC users are likely to demand similar levels of privacy protection. This study, conducted by independent researchers, surveyed 3,500 individuals regarding the potential use of CBDCs as a payment method, contingent upon the degree of privacy offered. The extent of information provided about privacy was also a significant determinant. The study found that both factors significantly increased participants' willingness to adopt CBDCs as a payment method, particularly when purchasing privacy-sensitive products.

Privacy and CBDCs: A Complex Relationship

While the exploration of CBDCs has been widespread, privacy has not always been considered a central objective. For example, the U.S. has stated that its prospective CBDC will not support anonymity. However, the report suggests that if a CBDC is designed to offer sufficient anonymity and privacy protection, while also complying with anti-money laundering and combating the financing of terrorism regulations, it is more likely to replace existing payment options offered by the private sector, including commercial banks' demand deposits.

CBDCs: A Popular Choice for Offline and Online Purchases

The study found that, when available for offline transactions, CBDCs ranked as the second-most preferred payment method, chosen by 27.3% of respondents, while credit or debit cards prevailed with 31.3%. In online transactions involving privacy-sensitive products, CBDCs took the lead as the most popular payment method with 42% of the preference share, and secured second place (29.7%) for privacy-insensitive products.

CBDCs versus Stablecoins

CBDCs, as an officially issued version of a currency, face competition from the private sector in the form of stablecoins such as Tether$1.000 -0.12%'s USDT and Circle Internet Financial's USDC. These tokens are expected to maintain a value close to $1, thereby serving as a blockchain-powered substitute for the traditional U.S. dollar. However, a recent BIS report critically examined stablecoins and argued that they failed to retain their peg to their underlying currencies, thereby advocating for CBDCs.

Further Reading: The Unfulfilled Promise of Stablecoins

For more insights, refer to the BIS report titled Stablecoins Are Failing to Live Up to Promise.

Edited by Jonathan Stoker