CBDCs can improve retail payments without expanding government transaction-data access

What's this about?

People disagree about whether digital money run by a central bank can make shop payments better without giving the government more data.

What supporters say

• A CBDC could cut steps when money moves, which may make some payments faster and cheaper.
• Tests show this kind of money can finish both parts of some cross-border deals at the same time.
• Central banks hope CBDCs can help more people use payment tools and keep payments working during trouble.
• Code that locks data and rules that share less data can limit what system staff see.

What critics say

• Tests of cross-border and large-bank deals do not prove benefits for daily shopping at home.
• A CBDC has no built-in speed edge over other payment systems.
• Central bank interest does not prove that costs will fall or that payments will speed up.
• Privacy rules can change by payment type, value, and the final system plan.

The bottom line

CBDCs might improve some retail payments and protect some payment data. But we do not yet know if they will do this in general or stop wider government access to payment data.

Central bank digital currencies, or CBDCs, could make some retail payments cheaper and more private. But the evidence does not show that they will do so in general—or that they can prevent governments from gaining broader access to transaction data.

The case for

The strongest argument for a retail CBDC is that it could simplify how money moves through the payment system. In places where payments remain slow, fragmented or dependent on several intermediaries, a CBDC might cut settlement steps and related costs. Experiments by the Bank for International Settlements have shown that tokenized central-bank money can enable faster or “atomic” settlement—where both sides of a transaction are completed at once—in selected cross-border and wholesale settings. That demonstrates that the technology can work, though it does not prove comparable benefits for everyday domestic shopping 1.

Many central banks are also exploring retail CBDCs because they see possible gains in resilience, financial inclusion and efficiency. Those policy goals suggest that payment improvements are a serious prospect. Still, interest from central banks is not evidence that a CBDC will necessarily lower costs or speed up retail payments in practice.

There is also a credible technical case for privacy. Researchers have identified tools such as cryptography, selective disclosure and data minimisation that can limit how much payment information is exposed to system operators. In other words, a CBDC does not have to give a central bank routine access to every transaction 2.

The proposed digital euro offers an example of this approach. Its backers have said the Eurosystem should have limited access to personal transaction details, while certain low-value offline payments could receive stronger privacy protections. But those protections would vary depending on how a payment is made and on the final system design (see Figure 2).

The case against

A CBDC has no built-in speed advantage over a well-functioning instant-payment network. Where consumers and businesses already have cheap, interoperable account-to-account transfers that settle immediately, a new public digital currency may add little. The International Monetary Fund has concluded that the extra efficiency offered by a CBDC depends heavily on weaknesses in the existing payment system 3.

Even if the technology makes settlement simpler, rolling it out at national scale could be expensive. A CBDC would require new infrastructure, cybersecurity, compliance systems and public education. Its fixed costs would need to be spread across enough transactions; if people do not use it widely, promised average-cost savings may never materialise 4.

Adoption itself is uncertain. Research points to trust, perceived usefulness, privacy, security, regulation and ease of use as important factors in whether people embrace digital currency. Other studies suggest that changes to banks’ incentives and the costs of implementation could offset some of the expected gains.

Privacy protections face a separate limitation: legal privacy is not absolute privacy. CBDC systems would generally still have to support anti-money-laundering rules, counter-terrorist-financing measures, fraud investigations, supervision and court-ordered disclosure. Technical safeguards can reduce routine access, but their real-world value depends on enforcement, governance and the range of legal exceptions 5.

Whether a CBDC expands government access is therefore a comparison with the alternatives. A privacy-focused design could reveal less information to a central operator than some centralised digital-payment systems. Yet it could also create a more standardised route for official access than cash, or than today’s fragmented network of private providers.

The bottom line

The evidence supports conditional feasibility, not a broad proven claim. CBDCs can plausibly improve settlement in payment systems that are slow or costly, and privacy-preserving designs are technically possible. But neither result follows simply from issuing a CBDC.

A successful outcome would require enough public use to justify infrastructure costs, and privacy rules that remain effective even alongside legitimate law-enforcement and regulatory demands. Strong existing instant-payment systems, weak adoption, high implementation costs or broad lawful-access powers could prevent either promised benefit.

Most importantly, there is no broad, large-scale post-deployment evidence measuring both retail-payment performance and government access to transaction data against a clear digital-payment baseline. The available evidence is largely made up of proposals, prototypes, technical research, legal analysis and models. It shows mechanisms and trade-offs, but not a statistically strong real-world result. Confidence is high that the answer is context-dependent: a CBDC can be designed to meet both aims, but it has not yet been shown to do so reliably in practice.