[Cryptography] Am I missing something about CBDC ?

[John R. Levine]

The widely read Lawfare blog had this piece on Central Bank Digital Currencies
and money laundering by a financial crimes analyst:

https://www.lawfareblog.com/central-bank-digital-currencies-threat-money-launderers-and-how-stop-them

I get the impression that he doesn't really understand how digital currencies
work.  So please tell me if I'm missing something.  I'm not asking whether CBDCs
are a good idea in the first place, which is a separate issue.

CBDCs are issued as tokens by a central bank, let's call it the Fed.  The
approach seems to be that they're issued in bulk to commercial banks which then
distribute them to their customers following KYC rules.  Then anyone can pay
anyone else using CBDCs.  I presume I pay you by giving you a token which you
present to the Fed, it cancels the token and gives you a new one at which point
you are paid.

He seems to believe that transactions are cleared through the commercial banks,
but I don't see how that works other than perhaps by forcing users to use their
banks as the gateway to the Fed, or I suppose maybe by keeping your tokens in an
account at your bank, which makes it easier to access them from multiple
devices.

The article talks about wallets, but if these are bearer tokens, what is a
wallet?  Your device has the tokens or it doesn't.  Maybe these are supposed to
be customer wallets at the bank at which point they smell a lot like
conventional bank accounts.

Since the tokens are all issued by the Fed, they're only sort of anonymous.  If
they decide a token is dodgy or suspicious, the Fed can decline to redeem it or
redeem it only if presented by certain parties. This makes the money laundering
issue easier.  (The author doesn't seem to understand that at all.)  On the
other hand, if the Fed clears all the transactions for free or close to free,
I'd expect a non-stop blizzard of mixing transactions which could have
performance issues as well as money laundering.

He says some other things that are obviously silly, like this enfrachises the
unbanked, not unless they have a smartphone and Internet conenctivity. If they
do, they're already using Square Cash or Venmo and loading money into them at
Walmart.

Or your car could have a CBDC wallet to buy gas or charge itself.  Well, yeah,
if that were a good idea I'd already have given it a virtual credit card number
on my Visa account.

Or we can have micropayments of a fraction of a cent!  A) No, they cost just as
much to clear as macropayments so they're too expensive. A') If you bundle them
and clear in bulk, the back end might as well be Paypal. B) People hate
micropayments which is why we all have flat rate phone service.

Anything else I've missed?

Regards,
John Levine, johnl at taugh.com, Taughannock Networks, Trumansburg NY
Please consider the environment before reading this e-mail. https://jl.ly