The coupling of money and identity

From a state perspective, the control and steering aspect is likely to be significantly more important than the technical-industrial advantages. The more digital and programmable money and its infrastructure are, the more efficiently the state can assert its interests. With the phasing out of cash, which is difficult to control, transactions that are processed exclusively digitally would provide more information. In the future, our money could also offer additional functions that
we find it difficult to imagine today.

“Bespoke” CBDC

For example, states and central banks could set individual rules for CBDC wallets in order to control the wallet owner as best as possible. Depending on the political stipulations, credit could be subsidized or sanctioned.
So when you visit another currency area, you could automatically get different exchange rates than someone from another region. Regions overrun by tourism or expats in particular could program their own price and tax policies, depending on what corresponds to their objectives. At this point, the question will also arise in the future as to what extent money must be tied to an identity. Purchasing power may then no longer result solely from the nominal value of the money.

Token and account based CBDC

More than ever, who owns the money and wants to spend or save could be crucial. Here, too, the design of the digital central bank money is decisive: There are account-based and token-based CBDCs; A combination of both models is also possible, so that the distinction can become blurred.

With the account-based approach, everyone involved in payment transactions would have to have an account with the central bank. The central bank is then responsible for all identification and settlement processes. It would look different with a token-based CBDC that does not require a central bank account. Even without identification at the central bank, whoever has the private keys could initiate a payment. In this scenario, the central bank would have no influence on who makes the payments, so the latter configuration has advantages from a privacy perspective.

By analogy with our current system, a token-based CBDC would correspond to our cash, while the account model is closer to our bank account, where the bank carries out appropriate identity checks. It is therefore not surprising that payment limits such as those for cash are already being considered for a more anonymous token-based CBDC in order to counteract money laundering and other criminal financial transactions.