The public, the private and the secret: Thoughts on privacy in central bank digital currencies

Abstract

This paper discusses the issues surrounding privacy and anonymity in the context of central bank digital currency (CBDC). Most notably, central banks calibrating the design criteria for CBDC must strike a balance between data protection and the individual’s right to privacy on the one hand, and the prevention of financial crime on the other. In this regard, there are — from a technical and governance point of view — a number of possible solutions. By way of illustration, this paper constructs three exemplary and simplified privacy scenarios. The paper also describes the need for standards to ensure the responsible treatment of data, and clear rules guaranteeing that access is restricted to public authorities fulfilling their mandates. When it comes to protecting user privacy in a CBDC system, this paper argues that independent central banks are ideally positioned to serve as an honest broker. In this respect, gaining the public’s trust and acceptance will be a key challenge for central banks.