When it comes to CBDCs, one of the main public concerns is the potential invasion of privacy. The European Central Bank (ECB) recently published a presentation specifically addressing this issue, stating that the Eurosystem should only be able to see minimal transaction data, but user anonymity is not a desirable design option.
Three privacy options
In response to EU citizens’ concerns about the privacy issue surrounding a CBDC, the ECB’s presentation includes three different privacy options that can be adopted for the digital currency.
First, similar to digital transactions by private banks, the current baseline scenario will allow euro digital intermediaries such as banks to access the transaction data, while the ECB does not. The presentation explains that this transparency serves the purpose of “Anti-Money Laundering and Countering Terrorist Financing (AML & CFT)”.
The bank described the other options as the “desirable” path it could take for its digital currency. One would allow a higher level of privacy for low-value/low-risk payments, implying “simplified controls” over transactions. However, standard controls still apply to high-value payments. The document did not specify the threshold qualifying for such a payment type.
The last option offers the highest level of privacy as transactions and balances are not transparent to intermediaries and the central bank. The bank noted that this offline option might only be available for low-value, low-risk payments.
Crypto venture advisor Patrick Hanse described the offline payment scenario as “theoretically pretty close to physical cash payments.”
Anonymity is not desired
While stating that the Eurosystem should have limited access to transaction data, the bank made it clear that user anonymity was not desirable due to money laundering concerns.
The presentation highlighted the likely trade-off between data protection and the EU legal framework, as implementation of AML measures tends to override users’ financial privacy. Hanse added that one of the key takeaways from the presentation is that the central bank outlined how far it can go to protect user privacy.
Source: Crypto News Deutsch