ECB Explores Anonymous Transactions with Central Bank Digital Currency

Wednesday, 18/12/2019 | 16:51 GMT by Arnab Shome
  • For high-value transactions, the revelation of identity will be necessary.
ECB Explores Anonymous Transactions with Central Bank Digital Currency
Bloomberg

The European Central Bank is looking into the development of a proof-of-concept (PoC) for a central bank digital currency (CBDC).

Revealed in a report published on Tuesday, the PoC has been developed by the central bank’s EUROchain research network to study the practical application of decentralized technology.

The report outlined that the concept is trying to Bridge the gap between the demand for private transactions and the regulators’ concern with anti-money laundering (AML) compliance.

“The ongoing digitalization of the economy represents a major challenge for the Payments ecosystem, requiring that a balance be struck between allowing a certain degree of privacy in electronic payments and ensuring compliance with regulations aimed at tackling money laundering and the financing of terrorism (AML/CFT regulations),” the report noted.

Bringing anonymity to transactions

The bank is planning to bring a payment system that has separate requirements for low-value transactions, called “anonymity vouchers,” bypassing the surveillance of the central bank. However, large-value transactions will require the mandatory revelation of identity for compliance with AML and counter-terrorism (CFT) requirements.

“In order to enforce AML/CTF limits on the amount that a user can spend without the AML authority seeing transaction data, a novel new concept – “anonymity vouchers” – has been devised,” the report stated.

“The AML authority issues these additional, time-limited states to every CBDC user at regular intervals. If users want to transfer CBDC without revealing information to the AML authority, they need to spend these vouchers (at a ratio of one voucher per CBDC unit transferred). Thus, the amount of CBDC that can be spent anonymously is limited by the number of vouchers that the AML authority provides to each user.”

The ECB is not alone in exploring the concept of CBDC as its counterpart in China is already vocal about such development and is aiming to strengthen the international usage of yuan with a digitized version of the fiat.

The European Central Bank is looking into the development of a proof-of-concept (PoC) for a central bank digital currency (CBDC).

Revealed in a report published on Tuesday, the PoC has been developed by the central bank’s EUROchain research network to study the practical application of decentralized technology.

The report outlined that the concept is trying to Bridge the gap between the demand for private transactions and the regulators’ concern with anti-money laundering (AML) compliance.

“The ongoing digitalization of the economy represents a major challenge for the Payments ecosystem, requiring that a balance be struck between allowing a certain degree of privacy in electronic payments and ensuring compliance with regulations aimed at tackling money laundering and the financing of terrorism (AML/CFT regulations),” the report noted.

Bringing anonymity to transactions

The bank is planning to bring a payment system that has separate requirements for low-value transactions, called “anonymity vouchers,” bypassing the surveillance of the central bank. However, large-value transactions will require the mandatory revelation of identity for compliance with AML and counter-terrorism (CFT) requirements.

“In order to enforce AML/CTF limits on the amount that a user can spend without the AML authority seeing transaction data, a novel new concept – “anonymity vouchers” – has been devised,” the report stated.

“The AML authority issues these additional, time-limited states to every CBDC user at regular intervals. If users want to transfer CBDC without revealing information to the AML authority, they need to spend these vouchers (at a ratio of one voucher per CBDC unit transferred). Thus, the amount of CBDC that can be spent anonymously is limited by the number of vouchers that the AML authority provides to each user.”

The ECB is not alone in exploring the concept of CBDC as its counterpart in China is already vocal about such development and is aiming to strengthen the international usage of yuan with a digitized version of the fiat.

About the Author: Arnab Shome
Arnab Shome
  • 6654 Articles
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About the Author: Arnab Shome
Arnab is an electronics engineer-turned-financial editor. He entered the industry covering the cryptocurrency market for Finance Magnates and later expanded his reach to forex as well. He is passionate about the changing regulatory landscape on financial markets and keenly follows the disruptions in the industry with new-age technologies.
  • 6654 Articles
  • 102 Followers

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