The panel hosted by the Digital Euro Association brought together British, American, and European digital currency experts.

The UN Declaration of Human Rights gives a reliable definition of privacy and the prevention of interference in people’s lives. Article 12 states: “No one shall be subjected to arbitrary interference with his privacy, family, home or correspondence, nor to attacks upon his honour and reputation. Everyone has the right to the protection of the law against such interference or attacks.”

But this has been muddied and complicated somewhat, albeit unintentionally, since the advent of the internet, with online data pools ripe for exploitation.

Fraud, money-laundering and criminal finance

“Privacy is one of those difficult concepts, but we know when it has been violated. You can’t have absolute privacy and do things in the world if you don’t share or speak to anyone. We have the worst of all worlds [with payments as they stand today]. It works for 80-90% of people’s needs,” said David Rennie, Identity Lead, Digital Pound Foundation. “But we have fraud, money laundering, and criminal finance abusing the payments infrastructure. It’s a global societal problem and one that needs to be considered when designing a new form of money.”

Jennifer Lassiter, Executive Director, Digital Dollar Project, emphasized the need to distinguish between privacy and anonymity, the latter keeping identities private but not activities.

“Across the US, UK, and Europe, we all share the same liberal values. There may be nuances but the basic principles around how payments infrastructures should work are broadly the same. The alternative is other regimes without liberal values who come up with payments infrastructures that work to their ends.”

David Rennie, Identity Lead, Digital Pound Foundation

Payments infrastructure

Dozens of countries are currently in the research and development phase of implementing CBDCs, according to the Atlantic Council.

“Regulation will differ in different jurisdictions according to regional and national values. In jurisdictions like the Bahamas and Jamaica, where CBDCs are live, they follow an intuitive approach where a low value payment can be made with a higher degree of privacy and a high value payment with a lower degree of privacy. This works from an AML perspective because a CBDC shouldn’t be fully anonymous,” Jonas Gross, Chair, Digital Euro Association, said.

While there is to some degree a need to protect users’ privacy, there is equally a need to target bad actors and financial criminals. But it isn’t yet known how central and commercial banks will work together in this endeavour.

“The amount of money estimated to be moving through the payments infrastructure associated with money laundering, criminal finance, and terrorist financing are astronomically huge,” Rennie said. “Payments have grown iteratively and so have regulations. Regulators have a responsibility to protect societies from bad actors, but the regulations are demonstrably not working to prevent the problem. So we need to ask – which stakeholders need to see which parts of the transaction?”

Democracies working together

While centralized digital currencies and the ability to track all payments sound like a panacea for solving financial crimes, there are understandable apprehensions about how this will affect people’s rights to privacy. Many organizations have expressed these concerns. A 2019 survey by EY found that while financial crime prevention and convenience were seen by respondents as the main benefits, 36% were concerned about social exclusion and 20% about the increased potential for cyber risk and potential mass outages.

“If we go back and look at our privacy regimes and how that is executed today and where perhaps it has become overly cumbersome and inefficient. Privacy is a top three concern across the globe,” Lassiter said.

“Some people’s concerns about CBDCs are of an Orwellian world created by a Big Brother government and state that wants to impose its evil will. I see it the other way round. In democratic societies we are very fortunate they work for us, we get to vote for them and tell them what we want.

“The Bank of England has a small team working on a huge problem. It’s incumbent on us to be having this discussion and thinking these things through and informing each other.

“Across the US, UK, and Europe, we all share the same liberal values. There may be nuances but the basic principles around how payments infrastructures should work are broadly the same. So the more we share, the better we will do. The alternative is other regimes without liberal values who come up with payments infrastructures that work to their ends. It’s incumbent on us to do it,” Rennie said.