Privacy and Retail Central Bank Digital Currency

This article discusses the options available to central banks for managing the trade-offs between satisfying legitimate user preferences for privacy and mitigating financial integrity risk, when they design a retail central bank digital currency (RCBDC). Citizens may shun RCBDCs that do not offer the same level of privacy as cash, but national authorities fear that RCBDC that allows for anonymous payments could facilitate illicit financial transactions. From a technical perspective, RCBDC systems can enable fully transparent, pseudonymous, or anonymous transactions, or hybrid approaches that allow anonymity up to specific monetary limits. Most central banks that have launched, or are piloting, RCBDC have adopted the latter approach. The article compares a number of different ways it is being implemented in RCBDCs that have been launched, or are being piloted, plus some novel approaches that have yet to be trialed.