ECB Report: Striking the Balance Between Allowing Privacy and Ensuring Compliance with CBDC

Sarah Tran   Dec 18, 2019 03:00 - 2019-12-18T105508.258.jpg


The European Central Bank has recently developed an “anonymity voucher” to safeguard potential central bank digital currency (CBDC) users’ privacy for low-value retail transactions, while ensuring that high-value transfers are subject to anti-money laundering (AML) approvals.  


The new concept provided by the ECB aims to solve the issue of anonymity in digital currency transactions, striking a balance between allowing Europeans to have private transactions as well as satisfying the need for regulators’ demand of AML rules. 


The report read: “Against the background of the ongoing digitalization of the economy, the payments ecosystem needs to find an answer to an issue that concerns all citizens: the question of how to allow some degree of privacy in electronic payments, while still ensuring compliance with AML/CFT regulations.” 


The proof of concept was drawn up by the European System of Central Banks (ESCB), to demonstrate the possibility of a simplified CBDC payment system, allow for some degree of privacy for transactions.  


With the support of Accenture and R3, the digitalization solution via distributed ledger technology (DLT), the user’s identity and transaction history would not be seen by the central bank or intermediaries other than the user, while still complying with AML/CFT compliance procedures. 


There are four main principles the proof of concept is based on. The first, the CBDC is assumed to have cash-like features, emphasizing on the users’ privacy on lower-value transactions, and balances are not remunerated. 



Source: ECB


The second, the design is built around intermediaries in a two-tier model. The central bank would rely on intermediaries that have access to central bank accounts and draw on balances held at the central bank and provide CBDC to the users, rather than the central bank servicing the users directly.  


Third, the central bank is the only entity that would issue CBDC units, also allowing them to remove them from circulation at any time.  


Lastly, a “dedicated AML authority” would be responsible to perform AML/CFT checks, checking the identities of users involved in large-value transactions. 



Image via Shutterstock



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