Managed anonymity of CBDC, social welfare and taxation: A new monetarist perspective

China’s central bank digital currency (CBDC), e-CNY, is currently in a large-scale pilot stage. In this study, a new monetarist model, both theoretically and quantitively, is developed to assess the relationship between the managed anonymity feature of e-CNY, social welfare, and taxation. The findings are as follows. First, the introduction of managed anonymous CBDC affects the official and shadow economy by increasing the diversity of payment instruments and suppressing tax evasion, thereby improving social welfare and government tax revenue. Second, if CBDC is ‘cash-like’ in the sense that it offers relatively high anonymity, then issuing CBDC meets the public demand for anonymous small value payment services and enhances the individual welfare of most households. Third, if CBDC is ‘deposit-like’ in the sense that it offers relatively low anonymity, then issuing CBDC combats illegal transactions in the shadow economy, and increases the total amount of social welfare and government tax revenue. The model, calibrated to the Chinese economy, suggests that aggregate welfare and government tax revenue can be increased by up to 3.2% and 10%, respectively. These findings suggest that policy-makers can dynamically adjust the anonymity design of CBDC to better align it with changing policy objectives and economic conditions.