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.

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. 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. Please copy and distribute
3
Books
2020
thecurrencycoldwar.com
digital financial services
2014
identityisthenewmoney.com
2017
beforebabylonbeyondbitcoin.com

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. 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. Please copy and distribute
6
Context
Law and disorder

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. Dave Birch, March 2021
8
Kidnapping
A crypto-enhanced crime

9. Dave Birch, March 2021
9
Ransomware
A crypto-native crime

10. Dave Birch, March 2021
10
Assassination Markets
A crypto-enhanced crime

11. Please copy and distribute
11
Implementation Options
Technology choices are critical and should not be left to nerds

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. 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. 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. 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. 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. 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. 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. 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. 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. 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. Please copy and distribute
22
A Cold War?
But this time for data not for land

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. 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. Please copy and distribute
25
Contact
David G.W. Birch
dgwbirch.com
@dgwbirch
Identityisthenewmoney.com
beforebabylonbeyondbitcoin.com
thecurrencycoldwar.com
willrobotsneedpassports.com