Karsten Wenzlaff, Advisor
August 26th, 2025
Karsten Wenzlaff is a Crowdfunding and Fintech Expert from Germany. He is Secretary-General of Digit[...]
The Diverging Paths of CBDCs, Privacy, and Global Payments
CBDCs | Feb 4, 2025
Image: Freepik/master1305
CBDC Research Continues Despite Diverging Strategies in Canada, UK and U.S.
While Canada paused its retail CBDC project last year, the Bank of Canada (BoC) recently published a 35 page report on "Privacy-Enhancing Technologies (PETs) for CBDC Solutions" while the UK is advancing its digital pound initiative and has provided an update. Trump explicitly banned CBDCs in the U.S. due to privacy issues upon taking office. This article looks at each country's latest approach to compare and contrast.
Background
As digital payments become more commonly accepted globally, central banks are rethinking the role of currencies in the digital age - aka, Central Bank Digital Currencies (CBDCs), which are largely about modernizing the infrastructure of the financial system. However, governments are approaching CBDCs differently, reflecting differences in monetary policy but also concerns about privacy, financial sovereignty, and security. There are two main use cases being researched including retail and wholesale.
You can think about Retail CBDCs as a 'digital dollar' which are designed for use by the general public to support daily transactions, savings, and digital payments. They promise to increase financial inclusion by providing easy access to digital financial services, even for individuals who are unbanked - meaning individuals/households that do not have access to traditional banking services such as savings/checking accounts or credit from a formal financial institution. Privacy protection and efficiency are key benefits but public trust in data security is paramount for retail CBDC success.
See: 2023 BIS Survey: CBDC and Crypto Trends Revealed
Wholesale CBDCs, on the other hand, are used by financial institutions for bank to bank transfers and could improve cross-border payments, reduce costs and enhance financial market stability. By optimizing interbank settlements, wholesale CBDCs can also strengthen liquidity management on a global scale.
A shared global concern is privacy protection. As digital currencies including CBDCs become more widely used, protecting sensitive financial data is essential other the financial system runs the risk of payment surveillance from hackers, bad actors, institutions, and government. Global cooperation between governments to ensure interoperability and compliance standards is critical, if CBDCs are to ever be adopted in a way that balances economic growth with financial privacy.
Canada Halts Retail CBDC Research, Focuses on Privacy-Enhancing Technologies (PETs)
In September 2024, the Bank of Canada stopped its work on a retail CBDCs after researching them for several years (see: Bank of Canada’s Latest on CBDC Implementation) citing that most Canadians were not interested in using a digital Canadian dollar. But they are continuing to research PETs like zero-knowledge proofs (ZKPs) and homomorphic encryption that offer privacy solutions that keep user data kept confidential while still enabling financial activities such as compliance checks and fraud prevention.
The report acknowledges several limitations with PETs though including slower transaction speeds due to the complexity of encrypting/processing large volumes of data. More sophisticated software and compute resources are required, raising costs. There is also scalability concerns which are still in early development stages. Lastly, any PET must still meet compliance requirements like anti-money laundering (AML) and counter-terrorism financing (CFT) while preserving user privacy, which is still a difficult act to balance.
The UK Advances Digital Pound Initiative
The Bank of England (BoE) is still working on the Digital Pound project to modernize the country's payment infrastructure and support financial inclusion as the usage of cash in the UK declines. On Jan 14, 2025 the BoE published a progress update on their findings.
In addition to the digital pound providing a secure and efficiency alternative to traditional payment systems, the BoE is exploring the potential to improve the efficiency of financial markets and cross-border payments, making the digital pound more versatile than just a retail transaction and savings tool.
See: Saudi Arabia Joins mBridge CBDC Project, Digital Oil Trade
One of their top priorities is tackling privacy concerns to gain public trust, and designing the digital pound to allow secure transactions while protecting personal data. Another challenge is interoperability with existing systems like credit cards and mobile payments. The digital pound has to integrate seamlessly for a smooth transition between traditional and digital finance. As more central banks investigate the potential of their own CBDCs, the UK's work on the digital pound project will certainly position them to take a leading role in crafting the future of digital currencies while maintaining their financial sovereignty.
The U.S. Bans CBDCs and Focuses on Stablecoins
In contrast to Canada and the UK, the U.S. has opted to ban CBDCs. On January 23, 2025, as part of the "Strengthening American Leadership in Digital Financial Technology" executive order, President Donald Trump effectively prohibited federal agencies from pursuing any sort of CBDC development largely over privacy and government control concerns (and desire to protect the existing financial infrastructure).
See: Fidelity Report Insights on Digital Assets in 2025
The U.S. government is however pursuing Stablecoins, seen more as a market driven solution that can offer the faster and cheaper benefits of digital currencies without the associated risks of a government issued form of digital money. This approach encourages more private sector innovation but raises questions about potential risks to consumers and financial stability.
In Conclusion
Varying approaches to CBDCs and digital money highlight the complexities of balancing between financial innovation, privacy protection, and regulatory compliance. Global cooperation will be essential to address privacy concerns and ensure interoperability and security.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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