Privacy and Transparency in CBDCs: A Regulation-by-Design AML/CFT Scheme

Central banks and governments all over the world are increasingly exploring digital versions of fiat money, known as retail Central Bank Digital Currencies (CBDCs). Most initiatives rely on Distributed Ledger Technologies and are presented as alternatives to physical cash. Consequently, anonymity-related regulatory questions have naturally started to arise in terms of Anti-Money Laundering and Counter-Terrorist Financing compliance. Against this backdrop, this paper provides a techno-legal taxonomy of approaches to balance privacy and transparency in CBDCs without thwarting accountability, but it also underlines cross-sectoral impacts. The contribution heeds regulation-by-design as its core methodological foundation, with Privacy-Enhancing Technologies as the relevant use case. Thus, it highlights that not only technology aids legal purposes, but also that some regulatory requirements ought to be designed into technology for one to reach agreed-upon results and/or standards.