A Theory Model of Digital Currency with Asymmetric Privacy

Abstract

This paper considers introducing asymmetric privacy in the design of central bank digital currencies (CBDC) and digital currencies more generally, to preserve the privacy of money spent while keeping the benefits of digital records for money received. It is shown that this feature would help minimize real distortions between consumers, firms, and financiers, while enabling tax optimization and better access to external financing. Protecting the privacy of consumers is always desirable from an aggregate standpoint as long as there exist some privacy concerns. Implementing asymmetric privacy is technologically feasible, using for instance Zero-Knowledge proofs or other privacy tools.

Keywords: Central bank digital currency design, data privacy, learning, real effects of privacy preferences, verification costs, technological tools for privacy

JEL Classification: C70, D18, D83, E42, E58, G21, G23, L86