“Project Tourbillon - Exploring privacy, security and scalability for CBDCs”
The use of cash is in decline worldwide as digital payments continue to grow. Over the past decade, the number of cashless payments has grown at an annual rate of 16%, with more than one trillion transactions in CPMI countries alone.
1 In this context, concerns about the potential erosion of privacy are being raised.
2 Unsurprisingly, public consultations by central banks on retail central bank digital currencies (CBDCs) show that privacy is a fundamental user requirement.
3 Privacy is the right to keep personal information secret or known only to a
trusted group of people. This implies that there are different levels of privacy.
According to Bank of Canada et al (2021), payments can be (i) confidential, where only trusted parties see personal information (such as credit card payments); (ii) pseudonymous, where identifiers or public addresses can be used to identify an individual (such as bitcoin transactions); or (iii) anonymous, where parties to a transaction cannot be identified (such as cash payments).
However, privacy and data protection need to be balanced with other public policy objectives, in particular antimoney laundering and combating the financing of terrorism (AML/CFT) and countering tax evasion.
Project Tourbillon introduces a new privacy paradigm that balances user needs and public policy objectives: payer anonymity. For example, a consumer who pays a merchant using CBDCs does not disclose personal information to anyone, including the merchant, banks and the central bank.
However, the identity of the merchant is disclosed to the merchant’s bank (as part of the payment) but is kept confidential there. The central bank does not see any personal payment data but can monitor CBDC circulation at an aggregate level.