Digital Assets: The ESCB has Proof-of-Concept of Anonymous Digital Currency

December 19, 2019 | Digital Assets, Latest News, News

A central bank digital currency (CBDC) could still be anonymous, says the ECB.

The trade-off in a central bank sponsored digital currency (CBDC) appears impossible. How to strike a balance between allowing privacy in electronic payments, yet ensuring compliance with regulations aimed at tackling money laundering and the financing of terrorism (AML/CFT regulations)?

An ECB-coordinated project, conducted by the  European System of Central Banks (ESCB), has established a proof of concept (PoC) for anonymity in digital cash, reports COINTELEGRAPH.

The experiment does not indicate that the ECB will actually proceed with a CBDC. It’s just that – a prototype, so to speak.

A central bank digital currency (CBDC): Blockchain-based solution

The ESCB’s EUROchain research network (with the support of Accenture and R3) used distributed ledger technology (DLT), or the blockchain, in the CBDC experiment. The user can choose whether her identity and transaction history is visible to the central bank or its intermediaries.

The system works with “anonymity vouchers.”

These accumulate the total amount of anonymous transfers made by the user over a defined period. Beyond that amount, the system delegates additional controls to an AML authority. Moreover, the entire procedure is automatic with a digital procedure for AML/CFT compliance.

The PoC, therefore “demonstrates that it is possible to construct a simplified CBDC payment system that allows users some degree of privacy for lower-value transactions while still ensuring that higher-value transactions are subject to mandatory AML/CFT checks,” the ESCB report says.

The PoC assumes that the CBDC has cash-like features. Moreover, the central bank alone can issue CBDC units or remove them from circulation. Further, an independent and dedicated “AML authority” performs the AML/CFT checks. Lastly, the system revolves around intermediaries (Tier2) that will interact between the users and the central bank (Tier1). They have access to central bank accounts and can draw on balances to issue CBDC to the users.

The prototype runs on the Corda DLT platform.

Is the US considering a CBDC?

In October, Federal Reserve Bank of Dallas President Rob Kaplan said the Fed was “actively looking at and debating” issuance of a US digital currency.

The Fed could be mulling a US digital currency on fears that an upstart cryptocurrency could gain global adoption. The new currency could dislodge the US dollar from its perch as a global reserve currency. If a new digital currency dethrones the US dollar, demand for US assets could decline. This would dramatically push up the interest rate that the US pays on its debt.

“It’s $200 billion a year and all of a sudden we’ve got a tremendous problem here, so it’s something we’re watching very closely,” Kaplan said of the amount of additional interest payment the USA would have to shoulder.

[Related Story: Inevitable That Central Banks Will Start Issuing Digital Currency: Fed’s Harker  ]

Free Industry News

Subscribe to our free newsletter for updates and news about alternatives investments.

  • This field is for validation purposes and should be left unchanged.


Latest Alternative Investment News
FinTech: Klarna’s Valuation Plunges To $6.5B In Talks To Raise $650M (WSJ)
July 1, 2022     FinTech, Latest News, News

Klarna, the Swedish fintech known for its buy-now-pay-later (BNPL) financial product, is negotiating to raise $650 million at a valuation of $6.5 billion, which is a very sharp comedown from…
Venture Capital: OppZo, Which Funds Small Businesses Having Government Contracts, Raises $260M
July 1, 2022     News, Venture Capital

Fintech OppZo brings together investors and small businesses that need working capital loans for their government-facing businesses. Typically located in economically stressed areas of the country, these businesses represent an…
Alternative Investments/Digital: Jacobi To Launch Europe’s First Bitcoin ETF This Month

The Jacobi Bitcoin ETF, from Jacobi Asset Management, will have a number of firsts to its credit when it starts trading this month. It will be the first exchange-traded equity…
Artificial Intelligence: John Deere’s Advances in AI Powered Agriculture Machinery
July 1, 2022     Artificial Intelligence, News

John Deere (NYSE: DE) has achieved leadership in automated machinery powered by Artificial Intelligence (AI). The self-driving tractor pictured above was revealed in CES 2022 and has six pairs of…