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Money Laundering and the Privacy Design of Central Bank Digital Currency

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  • Zijian Wang

    (Wilfried Laurier University)

Abstract

This paper studies the implications of money laundering for the optimal design of central bank digital currency (CBDC). I build a general equilibrium framework to explicitly allow money laundering by agents and income audits by a government. I find that as long as CBDC offers less anonymity than cash, introducing CBDC will decrease money laundering. However, if CBDC still offers a relatively high level of anonymity but a low interest rate, then introducing CBDC will decrease the output from not only agents who launder money but also agents who do not. If CBDC instead offers low anonymity and a high interest rate, then introducing CBDC can increase aggregate welfare without lowering output. Furthermore, introducing CBDC needs not increase the funding costs of banks or decrease bank lending. (Copyright: Elsevier)

Suggested Citation

  • Zijian Wang, 2023. "Money Laundering and the Privacy Design of Central Bank Digital Currency," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 51, pages 604-632, December.
    • Handle: RePEc:red:issued:22-136
    DOI: 10.1016/j.red.2023.06.004
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    More about this item

    Keywords

    Money laundering; Central bank digital currency; Monetary policy; Banking;
    All these keywords.

    JEL classification:

    • K14 - Law and Economics - - Basic Areas of Law - - - Criminal Law
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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