BIS: Digital cash can offer cash-like privacy, but tech not production-ready

The Bank for International Settlements (BIS) said in a report published Tuesday that digital cash can provide privacy similar to physical cash, but the underlying technology is not yet 'production ready.' The Project Aurum Phase 2 report uses BIS's existing Aurum codebase to build a prototype that aims for a middle ground between complete anonymity and full transaction transparency. The report outlines technical features for a privacy-preserving central bank digital currency (CBDC).

BIS examined how data breaches could affect users. It found that compromising a single bank might expose that bank's customer data, but would not reveal customer identities from other counterparties. A breach at the validator level alone would not be sufficient to expose end users, according to the report.

The report addresses long-standing criticism that CBDCs could enable financial surveillance. Critics have warned that the technology might give authorities excessive control over individuals' money. The BIS findings suggest some privacy protections are possible, though the prototype is not yet ready for deployment.

Past examples illustrate the concerns. In 2023, Brazil's central bank released the source code for its CBDC pilot, and observers quickly identified mechanisms that would allow the central bank to freeze or reduce user funds within CBDC wallets. Earlier this year, US President Donald Trump banned federal agencies from issuing a CBDC in January, citing financial stability and privacy concerns.

The debate over CBDCs continues. Republican lawmakers have called for a permanent CBDC ban as a House vote approaches, according to a related Cointelegraph report. The BIS report adds a technical perspective to the policy discussion, showing both the potential for privacy and the remaining risks.