European Central Bank (ECB) has published a new study that proposes a new model to balance the functionality of Cryptocurrencies with concerns about anonymity and AML risks. The ECB, however, clarified that this work doesn’t mean the regulator is looking at creating its own digital currencies.

The new model introduces a different proof of concept that creates a simplified CBDC payment system, called EUROchain. Under the model, users can maintain privacy for lower-value transactions, while their higher-value transactions will remain subject to regular AML/CFT checks. This could be achieved through “anonymity vouchers,” which allow users to anonymously transfer a limited amount of the central-backed coin over a defined period of time, for example, $1000 per week.

For such low-value transactions, the user’s identity and transaction history can’t be seen by the central bank or intermediaries, up to the limit of the vouchers’ time and amount. The enforcement of limits on anonymous electronic transactions is automated, and additional checks are delegated to AML/CFT compliance authority, which also could reject transactions to banned users.

Tackling anonymity and AML compliance

As such, the proposed system is not seeking full control of information on its users, rather using controllable anonymity in digital currency transactions. At the same time, it will keep the balance to allow for regulatory demands like anti-money-laundering actions and combating the financing of terrorism.

The ECB said the digital currency would not rely on a pure Blockchain architecture. Instead, the features of the proposed system were developed by the Eurosystem's EUROchain research network, with the support of Accenture and R3, using distributed ledger technology.

While there is little consensus on how such a system might take off, the European Union was reportedly mulling issuing a proprietary cryptocurrency. Europe isn’t the only region exploring a digital currency as the idea emerged strongly in many countries that were worried that Facebook’s Libra cryptocurrency could erode their control over money.

“Although there is no immediate need to take concrete steps towards the issuance of CBDC in the euro area, the proof of concept will be instrumental in any assessment of (i) how CBDC could work in practice and (ii) how the specific technical features of such an initiative will affect its potential implications for the economy,” the ECB concluded.

European Central Bank (ECB) has published a new study that proposes a new model to balance the functionality of Cryptocurrencies with concerns about anonymity and AML risks. The ECB, however, clarified that this work doesn’t mean the regulator is looking at creating its own digital currencies.

The new model introduces a different proof of concept that creates a simplified CBDC payment system, called EUROchain. Under the model, users can maintain privacy for lower-value transactions, while their higher-value transactions will remain subject to regular AML/CFT checks. This could be achieved through “anonymity vouchers,” which allow users to anonymously transfer a limited amount of the central-backed coin over a defined period of time, for example, $1000 per week.

For such low-value transactions, the user’s identity and transaction history can’t be seen by the central bank or intermediaries, up to the limit of the vouchers’ time and amount. The enforcement of limits on anonymous electronic transactions is automated, and additional checks are delegated to AML/CFT compliance authority, which also could reject transactions to banned users.

Tackling anonymity and AML compliance

As such, the proposed system is not seeking full control of information on its users, rather using controllable anonymity in digital currency transactions. At the same time, it will keep the balance to allow for regulatory demands like anti-money-laundering actions and combating the financing of terrorism.

The ECB said the digital currency would not rely on a pure Blockchain architecture. Instead, the features of the proposed system were developed by the Eurosystem's EUROchain research network, with the support of Accenture and R3, using distributed ledger technology.

While there is little consensus on how such a system might take off, the European Union was reportedly mulling issuing a proprietary cryptocurrency. Europe isn’t the only region exploring a digital currency as the idea emerged strongly in many countries that were worried that Facebook’s Libra cryptocurrency could erode their control over money.

“Although there is no immediate need to take concrete steps towards the issuance of CBDC in the euro area, the proof of concept will be instrumental in any assessment of (i) how CBDC could work in practice and (ii) how the specific technical features of such an initiative will affect its potential implications for the economy,” the ECB concluded.