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Anonymous CBDC? No thanks.

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Anonymous CBDC? No thanks.

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Why anonymity - unconditional anonymity - in central bank digital currency would be a disaster. Hence central bank digital currency cannot be "just like cash".

My presentation to the OMFIF Digital Monetary Institute Symposium, April 2021.

Why anonymity - unconditional anonymity - in central bank digital currency would be a disaster. Hence central bank digital currency cannot be "just like cash".

My presentation to the OMFIF Digital Monetary Institute Symposium, April 2021.

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Anonymous CBDC? No thanks.

  1. 1. Please copy and distribute 1 Digital Currency Should Be Like Cash (not) OMFIF Symposium David G.W. Birch Advisory Board Member, Digital Monetary Institute Rev 1
  2. 2. Please copy and distribute 2 Forbes contributor; Financial World columnist; Honorary President, European e-ID Assocation; Top 100 Most Influential People in Fintech 2021; Wired top 15 favourite source of business information; PR Daily top 10 Twitter account followed by innovators; Financial Brand top 10 influential voice in banking; Total Payments Europe’s most influential commentator on emerging payments; Emerging Payments Association contributor of the year 2018/19. David G.W. Birch In addition to board and advisory positions Author and advisor on digital financial services www.dgwbirch.com
  3. 3. Please copy and distribute 3 Books 2020 thecurrencycoldwar.com digital financial services 2014 identityisthenewmoney.com 2017 beforebabylonbeyondbitcoin.com
  4. 4. Please copy and distribute 4 CBDC is a Thing Political, economic, social and technological impact Digital cash is coming But will it be private or public? How will it work? And why does that matter? What does it mean? Interesting scenarios…
  5. 5. Please copy and distribute 5 Central Bank Digital Currency (CBDC) Bitcoin, Ripple, Ethereum have been around for year Facebook, Amazon and others are coming China is taking the lead Central banks are responding Evolution and the technology tree Online and offline? Blockchains or databases? 👉🏻Anonymity Clouds, chips or chains? The issue of fungibility! Consumer products and services Businesses will see reduced friction The financial system will see an alternative with the potential to reduce intermediation costs Politicians will need to think about the projection of soft power. TRIGGER Why are we talking about CBDC now? SPACE RACE Given many options for electronic cash, which technologies are best? COLD WAR As digital currencies are implemented, by private and public actors, what are the economic and political implications?
  6. 6. Please copy and distribute 6 Context Law and disorder
  7. 7. Dave Birch, March 2021 7 Drivers for Digital Currency Based on the European Central Bank Report (*Added by the author) Strategic Independence Control and regulation Money supply Economic sovereignty Influence Projection of values Reputation Decline in Cash Social policy Financial Inclusion Cost savings Provision of viable alternatives Resilience* Law enforcement Risk mitigation Integrity Confidentiality Availability Privacy Environment Minimise impact of currency production, distribution and circulation. Competition* New products and services APIs Programmability Reduced cost of intermediation
  8. 8. Dave Birch, March 2021 8 Kidnapping A crypto-enhanced crime
  9. 9. Dave Birch, March 2021 9 Ransomware A crypto-native crime
  10. 10. Dave Birch, March 2021 10 Assassination Markets A crypto-enhanced crime
  11. 11. Please copy and distribute 11 Implementation Options Technology choices are critical and should not be left to nerds
  12. 12. Dave Birch, March 2021 12 Limiting Anonymity An Experiment Anonymity vouchers and AML node But what principles? Limits on the amount of CBDC that can be transferred in a given period of time and caps on the CBDC holdings of individual users are enforced at the level of individual intermediaries, which will be driven to reject transactions that infringe AML/CFT… limiting the amount of CBDC at the level of individual wallets would indirectly allow the overall CBDC volume to be controlled if for example the number of wallets per citizen and the usage by non-citizens were restricted.
  13. 13. Dave Birch, March 2021 13 From Privacy to Anonymity The Basic Options First Party Privacy You don’t know who you are 😂 Second Party Privacy You don’t know who your counterparty is Complete privacy You don’t know anything about them other than an identifier (eg, a wallet address) Partial privacy You know attributes but not identity (eg, IS_OVER_18) Third Party Privacy No-one knows who you are or who your counterparty is Unconditional It is computationally infeasible to connect the identifier to an identity Conditional The link is known by some third- party (eg, a bank) and is disclosed under certain lawful orders.
  14. 14. Dave Birch, March 2021 14 Scenarios Looking at the 2nd Party and 3rd Party options gives us four scenarios Warlord Wasteland Trade Tribes Big Brother Little Sisters Complete 2nd party anonymity Unconditional 3rd party anonymity A secret society where there is no trust and “power” resides with the resource-rich and unaccountable few (and organized crime, of course). Partial 2nd party anonymity Unconditional 3rd party anonymity A reputation economy in which trade can flourish in communities of shared values and verifiable credentials. Complete 2nd party anonymity Conditional 3rd party anonymity A network of purses in a panopticon, where the prisoners cannot see each other but the guards can see all of them, all of the time. Partial 2nd party anonymity Conditional 3rd party anonymity A world of glass houses, where the light can be turned on if there’s a need to see inside.
  15. 15. Dave Birch, March 2021 15 Facebucks Mark Zuckerberg told the audience at F8 in 2019 that sending money should be as easy as sending a photo. WhatsApp is already testing this with a million people in India and the feedback so far has been great.
  16. 16. Dave Birch, March 2021 16 Diem • “Stablecoin” • Dollar first • Still await a variety of approvals • But… who wouldn’t use it? If Libra becomes successful “it would instantly become systemic and will have to be subject to the highest standards of regulation”. Mark Carney, Governor of the Bank of England (2019).
  17. 17. Dave Birch, March 2021 17 Cash Isn’t the only thing in a Wallet “an additional goal of the [Libra] association is to develop and promote an open identity standard. We believe that a decentralized and portable digital identity is a prerequisite to financial inclusion and competition”
  18. 18. Dave Birch, March 2021 18 PBOC Deputy governor Fan Yifei told an audience at Sibos 2020 (5th October 2020) that until “late August” the bank had processed 3.1276 million transactions. The total value of theses add up RMB 1.1 billion ($162 million). More than 6,700 pilot use cases have been implemented for the CBDC. An aggregate of 113,300 personal digital wallets and 8,859 corporate digital wallets have been opened.
  19. 19. Dave Birch, March 2021 19 The People’s Bank of China “it is an irresistible trend that paper money will be replaced by new products and new technologies… digital currency should be issued by the central bank (my emphasis)… plans to gradually phase out paper money”. Governor of PBoC, Zhou Xiaochuan (2016). China will adopt the “two tier” approach, noting that to offset the shock to the current banking system imposed by an independent digital currency system they will incorporate digital currency wallet attributes into the existing commercial bank account system “so that electronic currency and digital currency are managed under the same account” Yao Qian, PBOC technology department (2017). Chinese digital currency (DC/EP) will be “exactly the same as paper money, but it is just a digital form” Mu Changchun, deputy director of PBoC’s payments department (2019).
  20. 20. Dave Birch, March 2021 20 Currency, Competition and Choice DC/EP can be used “without an internet connection would also allow transactions to continue in situations in which communications have broken down, such as an earthquake”. This would seem to mean that the system (as Mondex did) will allow offline transactions. If so, this would be truly radical. “even Libra can’t do this”. Mu Changchun, deputy director of PBoC’s payments department (October 2019). DC/EP will be available through banks but also in Alipay and Tencent wallets Distribution through China and along the belt-and-road! Including wearables and powered cards
  21. 21. Dave Birch, March 2021 21 CBDC Launch in China May 2020 Offline device-to-device As the PBOC say, “even Libra cannot do this” and they are correct. Live And with no blockchain in sight. This is not a “cryptocurrency” nor is it based on one. Bank wallet Can withdraw and deposit digital Yuan from/to account
  22. 22. Please copy and distribute 22 A Cold War? But this time for data not for land
  23. 23. Dave Birch, March 2021 23 Currency Propositions The [ECB] also sees a digital currency as a potential tool to bolster the international role of the euro, which makes up just 20% of central- bank reserves globally, versus the dollar’s 60%. It could let foreigners settle cross-border transactions directly in central-bank money, which would be faster, cheaper and safer than directing them through a web of “correspondent” banks. That could make the digital euro attractive to businesses and investors. Its main draw may be to offer a level of privacy that neither America nor China can promise, says Dave Birch, a fintech expert. The former uses its financial system to enforce sanctions; the latter seeks control. But getting the design right will be tricky: the European Union still wants to be able to track cash that is being laundered or hidden to dodge taxes. One fix could be to let users open e-wallets only once they have been vetted by banks, but for the use of the digital currency itself to be unmonitored.
  24. 24. Dave Birch, March 2021 24 eGDP Brexit Lolly eCAD Privacy Play eEUR Challenger Currency eCNY Belt and Road eUSD The Global Reserve International monetary policy impact Values as well as Value Tracking and Tracing Trade and Transaction Costs eAUD ?
  25. 25. Please copy and distribute 25 Contact David G.W. Birch dgwbirch.com @dgwbirch Identityisthenewmoney.com beforebabylonbeyondbitcoin.com thecurrencycoldwar.com willrobotsneedpassports.com

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