CBDCs and Privacy

Whether CBDCs are designed as token- or account-based, regulations such as those governing money laundering and the funding of terrorism mean total anonymity/privacy is not possible. Given that while privacy is highly valued in principle, the public take little to no action to safeguard their privacy in practice, is it so important? Whatever the answer, when it comes to the design of CBDCs, privacy is much discussed. Casual media reports of using CBDCs to control spending (stopping the purchase of alcohol for example) raises fears and highlights that ultimately digital privacy only extends as far as people trust their governments. In some parts of the world, not very far.

The Centre for Economic Policy Research (CEPR) has recently published an article ‘Central bank digital currencies, cryptocurrencies, and privacy: What experiments tell us’ by Emanuele Borgonovo, Stefano Caselli, Alessandra Cillo, Donato Masciandaro, Giovanni Rabitti. To address the problem some innovative experiments were run. The experiments assessed the role played and relationship between the different functions of cash (unit of account, medium of exchange, store of value) with privacy as a variable. Privacy was defined as anonymity in this work. It is this exploration of the importance of privacy which is novel in the research.