RDP 2024-02: Valuing Safety and Privacy in Retail Central Bank Digital Currency 6. Main Results

6.1 Willingness to pay for an RBA claim

Our results suggest that Australians on average are unwilling to pay for the added safety of central bank money. In particular, the top panel in Figure 1 shows an estimated willingness to pay of approximately $0 per year for an account provided by the RBA instead of a commercial bank, holding all other features of the account constant. We find the result unsurprising, given the range of measures in Australia that make commercial bank deposits safe already. Moreover, there have been few recent events of banking stress in Australia that might cause Australians to question the safety of their deposits.

A few caveats to this result:

• Timing. The survey is a snapshot of preferences during a particular period. The survey was also conducted a few months before commercial banking stresses in the United States and Europe, which appeared to increase public concern about the safety of bank deposits (Brenan 2023) and increased web search interest for banking stress topics in Australia (Figure 3, top panel). If our experiment was at that time, we might have found somewhat stronger preferences for safety.

• Confounds. There is some chance that our estimated willingness to pay for safety captures views or perceptions unrelated to safety. Our survey question was careful to hold other account features constant, but some respondents might still have been sceptical that a central bank account could realistically match the useful features of a commercial bank deposit account. For example, Li, Usher and Zhu (2023) use a Canadian survey to conclude that households have ‘strong preferences for bundling additional financial products with deposits’, which is unlikely to be possible with a central bank. Respondents might also be using the survey to convey a discomfort with this expanded role for the government in the financial system. If true, both mechanisms would cause us to understate the valuation of safety, and would justify a broader (but still policy-relevant) interpretation of our willingness-to-pay estimates.
• Optionality. Our survey design focuses on the valuation Australians put on having an RBA account. It does not tell us how much Australians value the option of having an RBA account, which is also a relevant policy question when assessing the case for CBDC. People might value the option to hold and use digital central bank money, to exercise only if there were to be a financial crisis or other stress event, as seems to be the case with physical central bank money (Guttmann et al 2021).
• Fee levels. For behavioural reasons, people could have reacted differently to a lower or higher set of fee options in the survey question, even if the difference in the fee options was still $5. For example, we could have used fees of $40 and $45, rather than (or in addition to) $20 and $25. We suspect that these base effects would be minimal but cannot be sure. For more clarity on this issue, future work might consider repeating the question in the next Consumer Payments Survey, randomly showing respondents different fee levels (all with a $5 difference).

6.2 Willingness to pay for transaction privacy

Privacy settings for CBDC look to be more consequential for uptake than any incremental safety benefits. We estimate that Australians' average willingness to pay for sharing transaction data with no-one (full anonymity), as opposed to sharing data with either AUSTRAC, the RBA or a commercial bank, are in all cases around $5 per person per year, with the estimates for AUSTRAC lowest (Figure 1, bars 1 to 3 of the privacy panel). These results imply that a CBDC that offers transaction anonymity, even if only for small transactions, would deliver some value for consumers (probably less than our $5 estimate though, given that is for anonymity applied to whole accounts rather than anonymity that is conditional on transaction size).

To be consistent with the intent of Australian financial crime regulation, a CBDC would probably need to allow for ad hoc data sharing with AUSTRAC, at least for accounts making large transactions or holding large amounts of CBDC. Therefore, also relevant to policymakers are our estimates that consider an aversion to sharing data with the combination of AUSTRAC and the RBA, or the combination of AUSTRAC and a commercial bank, which are calculated as follows:

• We estimate that the average willingness to pay for full privacy, compared to sharing data with both AUSTRAC and the RBA jointly, is around $5 per person per year (Figure 1, bar 4 of the privacy panel). Being roughly the same as the individual AUSTRAC and RBA estimates, this estimate is consistent with Australians taking an all-or-nothing approach to sharing data with public entities.
• The average willingness to pay for full privacy, compared to sharing data with both AUSTRAC and a commercial bank jointly, is estimated to be around $10 per person per year (Figure 1, bottom bar of the privacy panel). Being roughly the sum of the individual AUSTRAC and commercial bank estimates, this result is consistent with Australians being averse to incremental reductions in privacy when that involves giving visibility to a commercial entity in addition to a public one.

These two estimates imply that Australians are willing to pay $5 per person more for an account that makes transaction data available to RBA instead of a commercial bank, assuming AUSTRAC can access the data in both cases. Aggregated over the adult Australian population, this equates to about $100 million per year. This is a potential value proposition for CBDC, although, as discussed in more detail in the summary and discussion, there is a tension here with prevailing presumptions about how a retail CBDC would be distributed to the public.

Some caveats to these results that also deserve mentioning:

• Timing. As with the safety estimates, the timing of the survey is relevant for interpreting the privacy estimates. Most notably, the survey was conducted very soon after highly publicised data breaches at private companies Medibank and Optus (Figure 3, bottom panel).
• Sample selection. Even though the responses of individual survey participants are anonymised, refusing to participate in our survey could be correlated with having stronger privacy preferences. If true, this would introduce a form of sample selection that downwardly biases our estimates of privacy. Not all the privacy estimates would necessarily be equally affected. For example, people that are most averse to sharing data with government agencies might be those that are most likely to refuse to participate in an RBA-branded survey. These issues are likely to arise in all survey-based investigations of privacy, to varying degrees.

Although we caution about studying privacy attitudes with direct survey questions, there is one such question in the Consumer Payments Survey that we do show results for here to demonstrate the types of data uses that consumers are most averse to. Consumers on average report being least comfortable with their data being used for profiling, where transaction details are linked with other data sources for the purposes of targeted advertising, for example. Consumers are most comfortable with their data being used for preventing fraud (Figure 4). This is consistent with our results, which suggest that consumers are least averse to sharing data with AUSTRAC.

6.3 Heterogeneity in preferences

We find no evidence that willingness to pay for either safety or privacy differs materially by age, holding income constant (Figure 5). Higher age groups are ostensibly a little less averse to sharing data with AUSTRAC and the RBA individually, but that pattern is not repeated in the result regarding the possibility of sharing data with AUSTRAC and the RBA simultaneously. Moreover, the difference is small in the context of the broader uncertainty around our estimates. We see little in these results to suggest that community privacy attitudes are likely to change with natural generational turnover.

We find more noticeable differences in willingness to pay by household income, holding age constant (Figure 6); our point estimates suggest that higher income individuals tend to put a slightly lower valuation on the account provided by the RBA. Regarding privacy, in all cases higher income individuals appear willing to pay a little more.

In the second extension model, the estimated safety and privacy valuations vary materially for those with medium to high rates of cash use (Figure 7). But because high rates of cash use are uncommon in the sample, the confidence we can assign to the estimated variation in valuations is poor (as indicated by the widening confidence intervals). Consistent with this, the estimated variations in the privacy valuations are not always easily reconcilable across the different privacy configurations. Over the cash use ranges for which we have most confidence – where, say, less than 50 per cent of a respondent's in-person transactions are made with cash – valuations for safety and privacy are stable.