The Bank for International Settlements (BIS) said digital cash can offer privacy properties similar to cash, but highlighted remaining risks, including how potential bank data breaches may expose users personal data.
While digital cash can achieve “cash-like privacy,” the technology stack is not yet “production ready,” wrote BIS in its Project Aurum Phase 2 report, published on Tuesday.
This phase implements a privacy-preserving digital cash prototype using BISs existing Aurum codebase to take a balanced approach between complete anonymity and full transaction transparency, BIS said.
BIS found that compromising one bank may expose its customer data, but would not expose customer identities from other counterparties. A validator-level compromise alone would not be enough to expose end users, according to the report.
The BIS report explores the technical features needed to establish a privacy-preserving central bank digital currency (CBDC). CBDC critics previously raised concerns about the technologys potential financial surveillance capabilities.
In 2023, Brazils central bank published the source code for its CBDC pilot, and within days, people noticed the surveillance and control mechanisms embedded within its code, allowing 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.
Related: Republican lawmakers call for permanent CBDC ban as House vote approaches