Privacy Matters for CBDCs

Uniquely amongst payment options, cash offers people payment privacy. A key part of the debate about Central Bank Digital Currencies (CBDCs) is about the extent to which a CBDC can mimic the privacy achieved by cash. A new Bank for International Settlements (BIS) working paper considers designing CBDCs for privacy protection and data governance ¹.

The paper makes the point that, while for cash anonymity and privacy are inherent in what cash is, CBDCs have to comply with anti-money laundering (AML) and combating the financing of terrorism (CFT) regulations. For a CBDC, the degree of anonymity and privacy protection are determined by the policy judgment of the central bank.

A representative sample of 3,500 people in Korea were surveyed to understand how their willingness to use a CBDC changed as the degree of anonymity and privacy protection varied. The survey also measured whether people’s willingness to use a CBDC changed as they became aware of the privacy benefits that could be designed in to a CBDC, such as preventing the commercial use of personal identity information and transaction data.