Bank of England FinTech chief underlines privacy, crime tackling benefits of CBDCs

The Bank of England (BofE) FinTech chief has said the introduction of a central bank digital currencies (CBDC) doesn’t require a trade-off between privacy and tackling financial crime.

Speaking at a Future of FinTech conference, the BofE director of FinTech Tom Mutton said that he believed preserving privacy and reducing financial crime can both be accommodated within a CBDC system.

He gave three reasons for this argument. The first was that the BoE has no ‘commercial incentive’ to gather user data, also that choices could be made within a system to protect data and that technologies – such as zero-knowledge proofs and digital identity frameworks – could enhance transparency while still boosting security and privacy.

Mutton highlighted during the speech that the BofE’s position is that CBDCs are of ‘great interest’ but that no decision on whether one was needed had been taken. He also stated that Britcoin – the potential CBDC that UK Chancellor Rishi Sunak has told the BofE to look at the case for – would not replace cash if it was introduced.

The BofE FinTech director also used the speech to list the benefits of CBDCs, including that they help support a resilient payments landscape, avoid the risks of new forms of private money creation, support competition, efficiency and innovation and improve the availability and usability of central bank money.

Other benefits of CBDCs included helping to address the consequences of a decline in cash and helping with better cross-border payments.

Mutton also sought to address environmental concerns, stating that the energy consumption of Bitcoin is not typical of all blockchain and distributed ledger-based approaches.

He added, “In fact, some of these technologies, including those developed to support some forms of private digital money, are potentially in the order of tens of thousands of times more efficient per transaction. So, let’s not throw the blockchain baby out with the Bitcoin bathwater.”

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