Bank of England Examines CBDC Privacy Trade-Off
As previously reported in this News section, central bank digital currencies are at the cutting edge of the struggle between the old system, of money and value exchange and the new. Our view was, and remains: “While CBDCs may be digital currencies… they are not cryptocurrencies. Cryptos have a money supply and validation run by shared-ledger or distributed-ledger technology (DLT). If you own a CBDC, much though the central bankers and governments might like you to think otherwise, you have a bank account with a government bank, the entity that has ultimate control of the ledger or money supply.”
The Bank of England is arguing differently – although the argument seems (to this writer at least0 less than convincing. Our friends at Finextra report:
The introduction of a central bank digital currency does not necessarily require a tradeoff between privacy and tackling financial crime, according to the Bank of England’s fintech chief.
Privacy has been one of the most hotly contested areas of the CBDC debate, featuring heavily in the feedback received by the BofE to its discussion paper on a potential Britcoin.
In a speech last week at the Future of FinTech conference, BofE director of fintech Tom Mutton said that while most respondents agreed that privacy is paramount, what that means in practice generated a wide range of views.
With a handful of exceptions, respondents were generally of the view that anonymity was not desirable, nor particularly realistic in digital payments, given their electronic nature, as well as the importance of reducing financial crime.
Some raised concern about the central bank being able to access information on their payments through a CBDC system.
Mutton believes that preserving privacy and reducing financially crime can both be accommodated within a CBDC system for three reasons: the bank has no commercial incentive to gather user data; choices can be made within a system to protect data; and technologies, such as zero knowledge proofs and digital identity frameworks, could enhance transparency while still increasing security and privacy.
Elsewhere in his speech, Mutton again stressed the BofE’s position is that CBDC is of “great interest” but that no decision on whether one is needed has been taken and that if a Britcoin was introduced it would not replace cash.
Listing the potential benefits, he cited supporting a resilient payments landscape, avoiding the risks of new forms of private money creation, supporting competition, efficiency and innovation, improving the availability and usability of central bank money, addressing the consequences of a decline in cash, and helping with better cross-border payments.
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Risk: Security, Access, Yield
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