European Central Bank says proof of concept shows some degree of privacy is possible
Coordinated by the European Central Bank (ECB), the European System of Central Banks (ESCB) has established a proof of concept for a central bank digital currency payment system that allows users some degree of privacy for lower-value transactions. The system can also ensure higher-value transactions are subject to mandatory money laundering and the financing of terrorism checks, according to a report by the ECB.
The ECB says the proof of concept uses distributed ledger technology to ensure a user’s identity and transaction history cannot be seen by the central bank or intermediaries, other than that chosen by the user. The system employs “anonymity vouchers”, which allow users to anonymously transfer a limited amount of digital currency over a defined period of time. The proof of concept is part of the ESCB’s ongoing technical research on digital currencies.
The ECB says the ongoing digitalisation of the economy represents a major challenge for the payments ecosystem, requiring that a balance be struck between allowing a certain degree of privacy in electronic payments and ensuring compliance with money laundering and the financing of terrorism regulations. Other countries, such as Pakistan, are also exploring whether distributed ledger technology could underpin a state-backed digital currency and increase financial inclusion.
For more information, see the ECB report here