How CBDCs will inevitably strip you of your right to privacy.

Nik Nicholas
5 min readJun 13, 2022


“The possibility of entirely private digital transactions that are obscure to central banks or intermediaries is low.”

Central bank digital currencies (CBDCs) are on the way, with a handful currently available. They provide a method for central banks to lubricate and digitise the global economy. A report published back in November 2021 by coauthored by JPMorgan and Oliver Wyman suggested CBDCs may save corporations $100 billion per year.

However, with China’s CBDC, which is now in advanced development, containing characteristics that allow it to have an expiry date and track expenditure, central bank digital currencies pose the troubling potential that they may be used to restrict privacy. As I previously wrote about here in The Dark Truth Behind Central Bank Digital Currencies The European Central Bank (ECB) seem to be aware of this, since the ECB has published a variety of privacy controls for its possible CBDC, ranging from the most basic to the most private.

However, there is no guarantee that the ECB — or any other central bank — will not simply choose the most privacy-preserving solutions when creating a CBDC, especially given the requirement to achieve strong anti-money laundering compliance. And, with a number of countries having less-than-perfect histories when it comes to human rights and civil liberties, there’s a fair risk that a major fraction of CBDCs will be utilised to infringe privacy.

What the European Central Bank’s privacy controls imply

|Given the European Union’s size and influence, the ECB’s privacy options provide insight into what real-world CBDCs would look like in most of the developed world.

The ECB presented three alternatives. The first is the “baseline scenario,” which requires that the identities of those transacting be transparent to the intermediaries participating in the transaction, such as a private bank and the ECB. This is to guarantee that the usage of a CBDC stays consistent with pre-existing anti-money laundering (AML) and counter-terrorism financing (CFT) laws.

Source: ECB

Most analysts and industry observers believe there is little to no possibility that a digital euro will not have such a feature, particularly when dealing with high volumes.

Other critics believe that transactions of significant value must be monitored, at least to the extent required to comply with AML/CFT requirements. Again, an opinion shared by those in traditional finance institutions.

In other words, a CBDC would likely involve the same level (or lack thereof) of privacy that we now have with banks, financial institutions, and private services: you sign up for some account or service and provide ID verification, and an authority (such as a central bank) can access the resulting data to ensure compliance.

The ECB, on the other hand, mentioned the potential of two more liberal possibilities, giving hope to anybody who wants CBDCs to retain some of the privacy-preserving aspects of cryptocurrencies.

These entail users being required to submit ID verification in order to use a wallet or service, yet being allowed to keep data from smaller transactions secret from intermediaries (e.g. central banks).

A central dilemma posed by the ECB relates to the politically desirable balance between a high level of privacy while using the digital euro and incorporating these privacy safeguards into the EU’s other policy objectives, such as money laundering prevention, something it has been working to try to lessen for a number of years.

Other CBDCs located outside of Europe

The fact that the ECB is likely to prioritise anti-AML compliance above maximal privacy may be worrisome for privacy advocates, but CBDCs are expected to become much more intrusive elsewhere in the globe.

It is likely that nations with a limited view of their people’ privacy rights would also implement lesser privacy requirements in their CBDCs,

This is already happening in China, where the e-CNY (also known as the digital yuan) may be given an expiry date or made programmable so that it can only be used on specific things. Naturally, all transactions are entirely transparent to the People’s Bank of China.

It is commonly known that China’s [e-CNY] CBDCs, the world’s first and most recently released CBDC, will track all transactions. This does not prevent Chinese nationals from completing transactions or restrict their freedom, unless there is a significant enough violation of the law to warrant the blocking of criminal persons from using their CBDCs,

Programmability is also illustrated in the context of the Bahamas sand dollar, which was the world’s first CBDC when it introduced in late 2020. Representatives from Norton Rose Fulbright and NZIA Limited, the two firms contracted to assist the Bahamas with the launch, discussed how the sand dollar may progress towards programmability and provide the basis for “a national identity system” in a blog for the OMFIF think tank at the time.

Given that the only two CBDCs now in use were created with programmability and ID in mind, there’s a significant probability that future CBDCs will be utilised in similar ways. This may come as a surprise to cryptocurrency users and holders, but it’s likely not shocking when central banks go to such lengths to stress that CBDCs are not cryptocurrencies.

Even with the ECB examining privacy considerations, there is still a potential that privacy may not prevail.

Why are central banks interested in CBDCs?

Cynics could believe that governments and central banks are interested in CBDCs because they are unlikely to be privacy-friendly. Nonetheless, industry experts agree that there are additional compelling reasons to pursue central bank digital currencies.

Stringent laws and quasi totalitarian control can be enforced by any central bank through CBDCs; nevertheless, restricting financial privacy and/or freedom of individuals would not be the absolute primary purpose in adopting CBDCs because there are potentially considerably bigger benefits to a nation’s economy, such as reducing corruption, government subsidies etc and some still to be determined benefits of national or continental digitisation.

Additionally, there are a number of banking activities that CBDCs could also address such as inefficiencies in securities settlement, liquidity and credit challenges by providing great opportunity for instant remote settlement of stocks or FX. They also offer to save expenses, for example, by directly supporting domestic and alternative currencies for cross-border payments via new direct corridors with other countries via CBDCs, although how this would work in practise and be received by the public from viewed through a humanitarian lens , still remains to be seen.

To be sure, not all central banks are confident that the advantages will be significant enough to justify the establishment of an official CBDC. With practically every major central bank in the world exploring a digital currency in some form or another, it’s only a matter of time until more CBDCs emerge, making the new digital economy less anonymous and private.

Aren’t we all lucky.



Nik Nicholas

Investor // Practice Lead @ Radically Digital