The memo concludes that, as long as a ledger is involved, ‘privacy is not possible’. In this regard, there would be no difference between token- or account-based digital currencies. Whichever method is chosen for central bank digital currencies, the privacy offered by cash will not be replicated.

Since cash payments can be completely anonymous, they also allow for… a payment made between two parties that know each other’s identity without revealing the identities to any third-party. This is sometimes referred to as ‘privacy’.

Sveriges Riksbank On the Possibility of a Cash-like CBDC

CBDCs could also take an account-based approach, which would rely on verifying the identity of the owner (as opposed to the token-based system that would verify the validity of the token itself). The memo notes that ‘legal regulations require digital payments to be non-anonymous’, and account-based systems must have registers to confirm the identity of the owner of each account. It predicts that any system where CBDCs are stored remotely would fall under this regulation, regardless of whether or not they involve tokens.

Our analysis shows the perception that token-based technology can… achieve cash-like features is misguided. A token-based CBDC appears no better at achieving cash-like properties than an account-based CBDC.

Sveriges Riksbank On the Possibility of a Cash-like CBDC

In November, we asked whether digital currencies developed and backed by the world’s central banks would seek to copy the benefits of cash, particularly the privacy and anonymity it offers. The answer, according to Sweden’s Riksbank, is a clear ‘no’.

In a staff memo made public in February, Riksbank reports central bank digital currencies (CBDCs) lack the capacity for providing offline or anonymous payments such as those offered by cash. It says that, since all CBDC payments will involve a remote ledger to keep track of ownership, ‘no CBDC can be genuinely peer-to-peer, offline and anonymous like cash.’

Many central banks exploring the possibility of a digital currency are considering a token-based approach. The memo explains a CBDC token as a digital object that has a given value expressed in the national unit of account, which makes a claim on the respective central bank. It concludes that, should such technology be pursued, it is unrealistic to expect digital currencies to offer the same benefits as cash.