When it comes to CBDCs, one of the most common public worries is the possibility for privacy invasion, the European Central Bank (ECB) has released a presentation addressing this topic, stating that the Eurosystem should only have access to the bare minimum of transaction data, and that user anonymity is not a desired design option.
ECB Three Alternatives to Privacy
In response to EU citizens’ concerns about the privacy implications of a CBDC, the ECB’s presentation presents three distinct privacy solutions for the digital currency that can be implemented.
To begin with, the existing baseline scenario, which is identical to digital transactions through private banks, allows digital euro intermediaries such as banks to access transaction data while the ECB does not. According to the presentation, such transparency is necessary for “anti-money laundering and countering the financing of terrorism (AML & CFT).”
The other possibilities have been branded as the “preferred” course for the bank’s digital money. For low-value/low-risk payments, one might allow for more anonymity, implying “simplified checks” on the transactions. High-value payments, on the other hand, will be subject to routine restrictions. The text did not define what income level qualified for this type of payout.
The last option provides the most anonymity, as transactions and balances are not visible to intermediaries and the central bank. This offline alternative, according to the bank, may only be accessible for low-value/low-risk payments.
The offline payment scenario, according to crypto venture consultant Patrick Hanse, is “theoretically fairly close to physical cash payments.”
Anonymity Isn’t a Good Thing
While the Eurosystem should only have restricted access to transaction data, the bank made it plain that anonymity for users is not a desired feature due to money laundering concerns.
The presentation addressed the possibility of a trade-off between privacy and the EU legislative framework, as executing anti-money laundering (AML) procedures often takes precedence over consumers’ financial privacy.
Lastly, One of the big takeaways from the presentation, according to Hanse. Of course, is that the Central Bank has stated how far it is willing to go to preserve customer privacy.
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