A recent survey from the Bank of International Settlements found that both the provision of privacy protection and information about privacy benefits increased participants’ willingness to use CBDC by up to 60 per cent when purchasing privacy-sensitive products.
So, this is not just a theoretical consideration; it directly impacts the attractiveness and likely adoption rate of any CBDC offering.
The intermediated model
When it comes to the technology that underpins a CBDC, an intermediated model can potentially serve as an elegant solution to privacy concerns.
Private firms – instead of the government – would have direct commercial relationships with customers and personally identifiable data would be kept away from the core record of financial transactions, also known as the ledger.
This would mean that the central bank only provides the core infrastructure and ledger for a CBDC while private firms would act as wallet providers, which would ease privacy concerns, especially if the privacy promises were backed by the force of law.
We’re already seeing institutions such as the Bank of England explore this model, which it calls the platform model, for its CBDC initiative.
Initiatives like this are built around the idea that a digital currency system should not necessarily mimic the cash system of today, but that there should be some freedom to transact with privacy.
After all, wanting to maintain the right to make an occasional private payment, or spend money on something potentially controversial is surely not that extreme. So, why not strive for consensus on what the limits should be?
Think about the prize on offer: to implement a sufficiently free digital currency that preserves and propagates citizens’ historic rights to spend their money on what they please, while massively mitigating the extreme misuse we see with cash today.
It is only central banks who have the historic privilege and political position to allow it to happen – and only forward-thinking technology providers that have the expertise to make it happen.
Richard Gendal Brown is chief technology officer at R3, a ledger technology and services provider, and a member of the Bank of England's CBDC technology forum
