The race towards a functional and operational Central Bank Digital Currency is hotting up with the entire European Union now entering the space through an ECB mandated exploration of a digital currency. Through its EUROchain concept, the ECB is exploring the case of anonymity in central bank digital currencies.
More so, the notion of a EUROchain distributed ledger means that the ECB will be able to offer anonymity between central banks and users to an extent where due privacy is granted, but the transactions are also monitored to help catch tax evasion, offshore accounts, money laundering, accounting tricks, and moving dirty money.
For the ECB, it appears as if they have identified DLT as an option that helps strike a balance between a certain degree of privacy in electronic payments and ensuring compliance with regulations aimed at tackling money laundering and the financing of terrorism (AML/CFT
This EUROchain proof of concept drawn up by the European System of Central Banks (ESCB), is being subbed as a simplified CBDC payment system that allows users some degree of privacy for lower-value transactions, while still ensuring that higher-value transactions are subject to mandatory AML/CFT checks.
This is a major step in the right direction for the advancement of the technology of DLT and blockchain technology and shows that the banks are taking its potential seriously. However, it does also show that the banks still value control and ensuring that privacy is balanced with the protection of financial transactions.
Many nations are starting to look into the potential of CBSCs and how they can help keep these traditional financial institutions in time with the changing climate. China is one country that has taken the headlines of late with its own CBDC, seemingly the closest to completion.
For Europe and the ECB, this is still very much a pilot and a proof of concept, but their intentions are quite clear.
“That proof of concept is part of the ESCB’s ongoing technical research on CBDC, and the aim is to contribute to the broader discussion on the topic. The work carried out is not geared towards practical implementation and does not imply any decision to proceed with CBDC,” the ECB explained.
“The ECB will continue to analyse CBDC with a view to exploring the benefits of new technologies for European citizens and in order to be ready to act should the need arise in future. The prospect of central bank initiatives, however, should neither discourage nor crowd out private market-led solutions for fast and efficient retail payments in the euro area.”