European Central Bank Explores Anonymous Transactions With CBDCs
As part of a knowledge enriching proof of concept, the European Central Bank (ECB) studied the viability of anonymous transactions by implementing such a feature on its DLT based CBDC, which is strictly for research purposes at the moment. This experiment offered more clarity on the direction CBDCs could take and how issuance can be conducted on these ledgers, December 17, 2019.
Vouchers for Minimal Anonymous Transactions
First things first, in no day and age where central banks enjoy the ability to sway the economy and rely on customer data to do so can we reasonably expect to see private transactions directly enabled on the ledger. If you want to transact as usual using the ECB’s CBDC, your transactions will be subject to AML processing before being confirmed. But the central bank, through intermediaries that process transactions, will issue vouchers of certain amounts that allow users to send tokens across the network without revealing their identity to the AML checkpoint.
This is definitely a step in the right direction. One of the primary concerns with CBDCs was the improved ability for the government to invade individual privacy and implement a more ruthlessly efficient surveillance state. Allowing customers to transact for small amounts privately brings the anonymity factor of cold, hard cash into the equation.
Larger Implications of This Experiment
Firstly, the notion that retail customers will be able to hold deposits with the central bank and bypass the commercial banking system has been discarded, as expected, probably due to the colossal impact that would have on the financial industry. Intermediaries will exist in two forms: AML enforcers and transaction processors. Banks will probably be able to act as both, meaning there is scope for this “trustable” system to become another tool for crony capitalism and favors.
Second, issuance will be controlled by the central bank based on the demand coming from users. While the reason for issuance remains the same as the current banking layout, money issuance is being moved from the hands of commercial banks to central banks.
One of the more profound misconceptions that have made its way into the depths of cryptocurrency enthusiasts is the idea that central banks are in control of the money supply, aiming their printing machines at the sky and prancing in glory. Most money is issued by way of commercial bank loans; the central bank seldom enters this process, merely providing on-paper liquidity through repo and quantitative easing.