European Central Bank Explores Anonymity-Focused CBDC In New Report

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The European Central Bank (ECB) has laid out suggestions for an anonymity-centric central bank digital currency (CBDC) in a new report.

The European Central Bank (ECB)
The European Central Bank (ECB)

In a newly published working paper, the ECB says that an anonymous CBDC is โ€œpreferableโ€ to regular payment systems, but that privately issued tokens would ultimately stand in its way.

โ€œWhile a CBDC with anonymity is preferable to traditional electronic payments such as bank deposits, it may become supplanted by payment tokens issued by large technology firms,โ€ the report says. โ€œThis risk would be particularly tangible if those platforms compete with banks in the market for financial services. However, an optionality for dataโ€sharing features may result in a widespread CBDC adoption.โ€

According to the ECB, tokens issued by digital platforms allow merchants to hide from banks, but enable the platforms to โ€œstifle competition.โ€ Therefore, the officials say that an independent digital payment instrument โ€“ a CBDC โ€“ that allows all parties to share their payment data with select entities would overcome all these frictions while achieving efficient allocation.


The paper also states that the introduction of a CBDC with anonymity would enable merchants to prevent banks from โ€œextracting information from payment flows.โ€

Instead, the bank must elicit such information through contract terms. As a result, merchants distribute more goods online, which raises social welfare.

On the other side of the Atlantic, US officials have attempted to spark discussions of privacy-centric digital coins. โ€‹โ€‹Reps. Stephen Lynch (D-Mass.), Jesรบs Chuy Garcia (D-Ill.), Ayanna Pressley (D-Mass.) and Rashida Tlaib (D-Mich.) are set to introduce the Electronic Currency and Secure Hardware (ECASH) Act.

The bill would call upon the Treasury Department to run a program that would manage the creation and implementation of โ€œe-cashโ€ and any technological infrastructure required to support anonymous transactions.


Rohan Grey, a professor from Willamette University who consulted on the bill, said the bill is meant to create a โ€œtrue digital analogue to the U.S. dollar.โ€

Grey also said that the proposed currency wouldnโ€™t have any blockchain, and would be completely anonymous and peer-to-peer (P2P).

โ€œInstead, it would be purely peer-to-peer, capable of offline transactions, and able to be held and used completely anonymously, like physical cash is today,โ€ explained Grey.

Disclaimer: These are the writerโ€™s opinions and should not be considered investment advice. Readers should do their own research.



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