The European Central Bank (ECB) published EUROchain, a report that showcases a Proof-of-Concept for a central bank digital currency. The goal is to maintain the anonymity of transactions while preventing money laundering and terrorism financing.
EUROchain. Under this codename, the European Central Bank (ECB) is exploring the opportunity of a digital Euro. It has recently conducted a Proof-of-Concept (PoC) to find ways to protect the users’ anonymity while still conducting AML and KYC checks to combat criminal activity. You can download the full report here.
EUROchain was developed in cooperation with R3 and Accenture using IT-infrastructure based on the Corda platform’s functionalities. Today, 18 central banks are taking part in this initiative.
Balancing privacy and AML compliance
The primary purpose of the recent EUROchain PoC is to combine the efficiency and anonymity of a blockchain-based digital currency with anti-money laundering requirements of the state. One of the main concerns of regulators when it comes to public digital currencies like Bitcoin is their use for criminal activity such as money laundering or terrorism financing.
EUROchain explores a model that helps users conducting lower-value transactions to maintain their privacy, while transactions of higher value will still be subject to AML and KYC checks. For smaller transactions, users can deploy “anonymity vouchers” to transfer a limited amount over a set time period, for instance, $1000 every week.
According to the ECB, this model provides a digitized solution to keeping a user’s transaction history and identity hidden from the central bank or its intermediaries while remaining in compliance with AML/CFT procedures. Instead of full-control of user information, EUROchain implements controllable anonymity in digital currency transactions.
Digital Euro still far out
While the ECB is looking into the CBDC use case, a digital euro is still far out. EUROchain is merely a platform to conduct experiments; there is no concrete agenda or timeline to implement a central bank digital currency in Europe.
However, with the ECB playing a more active role and pushing European-wide research and development cooperation, there is at least some movement. Christine Lagarde, ECB’s President, also announced the creation of a task force to accelerate the ECB’s efforts.
Putting EUROchain into an international context, the ECB should better hurry up. Pressure comes from Facebook’s Libra project, which has threatened governments’ money monopoly. Also, other central banks are already way ahead of the ECB. The People’s Bank of China, for example, has announced to launch a digital Yuan already in 2020. Also, in Europe, several central banks, such as in Sweden and Switzerland, have been undertaking CBDC development and research for quite some time now.
Being a first-mover matters, because once another digital currency has taken the international lead, it will become more difficult for latecomers to catch up. That’s why politicians and industry associations in Europe are increasingly pushing for a digital Euro. The implementation wouldn’t even be difficult, neither from a technical nor from a cost perspective. However, the political process takes time. That’s where countries like China have an edge.