Kiffmeister’s #Fintech Daily Digest (10/10/2020)

Are central banks constrained by AML regulations in designing CBDCs?

Central banks, in itemizing the various central bank digital currency (CBDC) design choices available, often explain that any design will be constrained by the necessity to “comply with AML law.” However, according to Jerry Brito, no such constraint exists in reality and the various central bank papers that bring this up do no cite any specific law or regulation. It seems to be a tic on the part of the paper authors who seem to be assuming there must be such a law and are thus artificially limiting their design choices.

The ECB’s digital euro: anonymous or not?

The European Central Bank (ECB) recently published a report that explores the idea of introducing a digital euro for use by the general public.  The report says that anonymity may have to be “ruled out.” It says that regulations do not allow anonymity in electronic payments, and the ECB must comply with regulations. However, JP Koning points out that the Fifth EU Anti-Money Laundering Directive (AML5) exempts issuers of e-money/prepaid cards from collecting customer information as long as long as fixed monetary (very small) thresholds aren’t exceeded. 

On the other hand, according to the Bank of Finland’s Aleksi Grym, a digital euro might not fall under e-money laws – could also fall under bank deposits, or it might require an entirely new legal category. Also, 5AMLD is just one directive, but payments are regulated by many directives, regulations, and national legislation, different in each country. Legislation is not uniform across the EU. Also. a key point is that even if something (anonymity in this case) would be really beneficial to have, it doesn’t necessarily mean it should be the central bank who provides it. 

Do we need programmable money?

Even if these problems for the various forms of programmable money can be overcome, it still leaves the question of what is programmable money for? Robert Sams points to the general potential for innovation, “More likely are the use-cases that don’t even exist today and can’t exist without programmable money. Use-cases where the contractual form of the deal is changed due to the capabilities of programmable money.” Aleksi Grym has a less optimistic view. “Generally, I’m not a fan of new words for old concepts, so in this case I’m asking myself, what would a normal person call ‘programmable money’? I think the answer is ‘conditional payment’.” 

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