Are There Tech Solutions to the Privacy and Compliance Trade-Offs for CBDCs?

Users will likely demand cash-like privacy protections for central bank digital currencies, which may be thwarted by regulations. However, new technology solutions may enable high degrees of privacy while complying with regulations.

A retail central bank digital currency (CBDC) has the potential to give authorities more information on users and their transactions as well as facilitate detection, supervision, monitoring and law enforcement efforts. However, this opens the central bank to criticisms that CBDCs could be used as a surveillance tool not only by itself, but by banks and payment service providers that are part of the CBDC ecosystem.

Also, authorities could theoretically censor specific users and transactions, thereby impairing user freedoms. Storing and collecting personal and transaction information could ultimately lead to price discrimination for CBDC users and increase their cybersecurity risks.

In the case of a hack, the leakage of personal information could lead, in the most extreme case, to financial losses that the central bank and/or its agents may be obliged to cover.

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