CBDC Faces 'Triple Dilemma' in Balancing Payments, Credit, and Privacy

As central bank digital currencies (CBDCs) and digital payment systems become more widespread, achieving efficiency in payments, credit supply, and privacy simultaneously poses significant challenges. Experts emphasize the need for a balanced approach in the design of digital currencies.

Marcus Brunnermeier, a professor at Princeton University, presented these insights during a session at the 2026 BOK International Conference held in Seoul on June 1.

Digital payment systems have evolved beyond mere payment methods to become essential financial infrastructures that integrate credit assessment and lending functions. Brunnermeier identified three core values that digital currency systems should pursue: efficient payments, effective credit supply, and privacy protection.

However, he noted that the balance among these goals can vary depending on who operates the digital payment systems and how they are managed, leading to a 'triple dilemma' where maximizing all three simultaneously is challenging.

"If interoperability between public digital payment methods and private platforms increases, payment efficiency may improve, but credit supply could decrease," Brunnermeier explained.

The introduction of public digital currencies like CBDCs could lower transaction fees and enhance payment efficiency. However, from the platform's perspective, it may become more difficult to enforce loan repayments, potentially reducing credit supply.

Strengthening privacy protection also creates another conflict. While CBDCs that guarantee anonymity are advantageous for privacy, they may increase the risk of defaults, thereby constraining credit supply. Conversely, systems that allow for transaction tracking can facilitate credit expansion but may compromise privacy levels.

Consequently, enforcing interoperability between monopolistic platforms and public digital payment methods could enhance payment efficiency but may weaken credit supply. Strengthening transaction anonymity could also hinder the enforcement of loan repayments, further diminishing credit availability.

Brunnermeier stated, "Expanding credit supply and promoting competition to lower transaction costs, while ensuring transaction anonymity, are all socio-economically important values, but they exist in conflict with one another. It is crucial to consider these factors when designing CBDCs and public digital payment systems, as well as when establishing regulations for private payment services."

He added, "Excluding people from digital systems can lead to higher interest rates in a general equilibrium state, making it more advantageous to hold digital currency than cash. If excluded, individuals will be unable to make future payments or save. An accommodative monetary policy benefits the digital payment ecosystem."

The discussion also featured Todd Keister, head of the Payments and Market Infrastructure Research at the Federal Reserve Bank of New York, and Vincenzo Quadrini, a professor at the University of Southern California.

Keister noted, "Individuals without assets find it difficult to secure loans, and small businesses also face challenges in having lenders assess their repayment capabilities. Digital ledgers can help alleviate these issues, as payment and transaction records remain on the platform and ledger, allowing for a more accurate assessment of borrowers' creditworthiness."

He further stated, "Payment systems exemplify the trade-off between privacy and credit transactions, showing that low-cost payments and privacy protection can coexist."

Professor Quadrini highlighted the additional benefits of digital ledgers. He explained, "The key point of this paper is that sacrificing privacy incurs a cost, as it requires identifying the counterparty in a contract."

He added, "Financial ledgers can also help mitigate timing mismatch issues, as financial contracts often require renegotiation of terms in the future. Ledger-based systems can handle this more efficiently. In particular, smart contracts can automate contract execution while increasing the potential for renegotiation, thereby improving the efficiency of financial transactions."