Central Bank Digital Currencies, anonymity and privacy: squaring the circle

Concerns around user anonymity and privacy have morphed into key public demands on central banks as the latter reflect on and explore the eventual issuance of retail central bank digital currencies (CBDCs). Some of the relevant debate is presented in terms of the need for central banks to balance their data protection duties as CBDC issuers against the need to uphold the payment system’s integrity from the dual risks of money laundering and the financing of terrorism. For the reasons explained in this article the apparent tension between privacy protection and AML/CFT regulatory compliance – portrayed by some as the basis for painful but necessary compromises at the expense of privacy – may be somewhat exaggerated. As explained below retail CBDCs are not inherently worse-off on the privacy front compared to established electronic means of payment. By way of...