ECB tackles anonymity and AML compliance in digital currency issuance

New research from the European Central Bank shows that it is possible to build a simplified payment system for central bank digital currencies, while safeguarding users’ privacy for low-value transactions and ensuring that higher-value transfers are subject to anti-money laundering checks.

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ECB tackles anonymity and AML compliance in digital currency issuance

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That proof-of-concept boasts several novel features developed by the Eurosystem's EUROchain research network - with the support of Accenture and R3 - using distributed ledger technology.

It tackles the thorny issue of anonymity in digital currency transactions, and in particular how to strike a balance between allowing a certain degree of privacy in electronic payments while ensuring compliance with regulations aimed at tackling money laundering

Under the model, neither the user’s identity and transaction history can be seen by the central bank or intermediaries other than those chosen by the user. Instead, the enforcement of limits on anonymous electronic transactions is automated, and additional checks are delegated to an AML authority. This is achieved using 'anonymity vouchers', which allow users to anonymously transfer a limited amount of CBDC over a defined period of time.

"Although there is no immediate need to take concrete steps towards the issuance of CBDC in the euro area, the proof of concept will be instrumental in any assessment of (i) how CBDC could work in practice and (ii) how the specific technical features of such an initiative will affect its potential implications for the economy," states the ECB paper.

The central bank stresses that the work carried out is not geared towards practical implementation and does not imply any decision to proceed with CBDC. it says the research is geared towards exploring the benefits of new technologies for European citizens "in order to be ready to act should the need arise in future".

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