Privacy-limited CBDCs have lower retail payment costs

What's this about?

People disagree about whether privacy-limited CBDCs can make store and online payments cost less. A CBDC is digital money run by a central bank.

What supporters say

• A public payment choice could push card firms and banks to cut their fees.
• This could help shops in places where card firms charge high fees.
• The planned digital euro could give people free basic use and limit shop charges.
• Direct payments in central-bank money could remove some middlemen and their costs.

What critics say

• No real-world proof yet shows that these CBDCs cut total payment costs on average.
• Lower fees at checkout may just move costs to banks, the state, or other parts of the system.
• Building, running, and keeping a CBDC safe could cost a lot of money.
• Results depend on the rules, the design, and whether enough people choose to use it.

The bottom line

CBDCs might lower some fees, especially where shops now pay high card charges. But we do not yet know if privacy-limited CBDCs lower total retail payment costs overall.

Privacy-limited central bank digital currencies, or CBDCs, could in some cases cut the fees consumers and merchants see at checkout. But there is no real-world proof yet that they lower average retail-payment costs overall compared with existing digital options.

The case for

The strongest argument is that a CBDC could create a public alternative to private payment networks, putting pressure on card companies, banks and other providers to reduce their prices. Competition, along with adoption, system design and interoperability, would shape whether that happens. A public payment rail could be especially useful in markets where merchants face high card-acceptance fees. 1

The proposed digital euro offers one example of how policymakers could lower visible charges. Basic services for individuals would be free, while charges to merchants and payment-service providers would be capped or otherwise regulated. Such rules could make payments cheaper for users, even if the underlying costs are paid elsewhere in the system.

CBDCs could also reduce some frictions by settling payments directly in central-bank money. That might lessen dependence on card networks or correspondent banking arrangements, removing certain middlemen and their charges. The US Federal Reserve has identified possible efficiency benefits from CBDCs, though it stresses that outcomes would depend heavily on how the system is designed and whether people actually use it. 2

Limits on privacy do not necessarily mean blanket surveillance. A system could give greater privacy to low-risk or small payments while applying legal checks to others. Offline payment options, spending limits and tiered digital wallets are among the possible designs. But these remain proposals, not evidence that privacy-limited CBDCs reduce average costs. 3

The case against

The central problem is simple: no available evidence shows that a privacy-limited CBDC has lowered average retail-payment costs across an entire jurisdiction. Rollouts such as the Bahamas’ Sand Dollar and Thailand’s retail CBDC pilot have provided information about operations, adoption and use. They have not produced a mature, like-for-like comparison of total costs against cards, bank transfers and other digital payment methods. A review of academic research likewise finds major unanswered questions and limited real-world evidence on economy-wide cost effects. 4

Privacy rules and anti-money-laundering requirements can themselves be expensive. Systems may need identity checks, data governance, cryptography, transaction monitoring, audits, cybersecurity measures and resilient offline-payment arrangements. These features may be necessary, but they add to both the cost and complexity of operating the network. 5

Nor would a retail CBDC necessarily remove intermediaries. China’s e-CNY relies on authorized operators, while the proposed digital pound would leave customer-facing services with private intermediaries. The digital euro proposal also includes a distribution model and compensation for merchant services. Wallets, customer onboarding, support, merchant acceptance and compliance would still have to be funded. 6

The comparison is also changing because existing digital payments may become cheaper without a CBDC. “Pay-by-bank” systems can potentially give merchants a lower-cost alternative to card payments, and research in Europe shows that payment costs differ widely by country, transaction size, payment method and accounting approach. A CBDC may therefore have a better chance of reducing costs where card fees are high than where fast, efficient account-to-account payments already exist. 7

Much depends on what “cost” means. Free basic services or merchant fee caps can lower the price that consumers and businesses see. But that does not necessarily mean lower total costs for society: expenses may instead be covered by public subsidies, regulated provider payments, or the costs of security, fraud prevention and infrastructure.

The bottom line

Privacy-limited CBDCs have a plausible path to lowering explicit payment fees in some settings, but they have not been shown to lower average retail-payment costs overall. The best case rests on competition, regulated fees and potential savings from direct settlement—not on observed, jurisdiction-wide results.

Any advantage would likely depend on the country, the payment system it already has, transaction volumes and public adoption. Large fixed costs for technology and compliance must be spread across enough payments before average costs can fall. The evidence is therefore strongest for a limited conclusion: lower visible fees are possible, but a broad claim of lower retail-payment costs remains unproven.