BIS: Digital currencies are not ready for implementation due to leakage risks

The Bank for International Settlements (BIS) reported that digital money could provide privacy similar to cash; however, the technology is not yet ready for implementation due to risks such as bank data leaks. In the report published on Tuesday regarding the Aurum Phase 2 project, BIS indicated that digital money could offer privacy features akin to cash but emphasized existing risks, including the potential for user data leaks. Although digital money could achieve "cash-like privacy," the technological framework is not yet ready for implementation, BIS stated. This phase implements a prototype of digital money that maintains privacy using the existing Aurum codebase to balance between full anonymity and full transaction transparency.

BIS noted that the compromise of one bank could lead to data leaks of its clients but would not result in the disclosure of the identities of clients of other counterparties. Furthermore, a compromise only at the validator level would not be sufficient to reveal end users, according to the report. The BIS report explores the technical specifications necessary for creating a central bank digital currency (CBDC) that preserves privacy. Previously, critics of CBDCs expressed concerns about the potential financial oversight capabilities of this technology.

In 2023, the central bank of Brazil published the source code of its CBDC pilot, and within days, people noticed surveillance and control mechanisms embedded in its code, allowing the central bank to freeze or reduce users' funds in CBDC wallets. Earlier this year, U.S. President Donald Trump banned federal agencies from issuing CBDCs in January, citing concerns about financial stability and privacy.