Tokenization as a Pathway to Anonymity in Central Bank Digital Currencies

Abstract

Central Bank Digital Currencies (CBDCs) have emerged as a pivotal innovation in the financial landscape. However, a fundamental challenge arises when considering the inherent nature of retail CBDCs: the potential loss of transactional anonymity, a hallmark feature of physical cash. This paper posits that while direct digital representations of currency may struggle to maintain user anonymity due to traceable digital footprints, tokenization could offer a solution. However, tokenized CBDCs would require users to engage with hardware wallets and third-party storage solutions, initially presenting a barrier due to the general public's unfamiliarity with such technologies. We propose that broad tokenization may address these challenges. As tokenization spreads and the upcoming generation becomes proficient in handling private keys, CBDCs could mirror cash's anonymity. This paper highlights the role of financial and IT education in building trust in tokenization and bridging the anonymity gap between digital and physical currencies.

Keywords: CBDC, Central Bank Digital Currency, Tokenization, Token-based CBDC