The Digital Finance Era by Babak Naysary & Amine Tarazi

Author:Babak Naysary & Amine Tarazi
Language: eng
Format: epub
ISBN: 9789819739707
Publisher: Springer Nature Singapore

Illicit Activities

CBDC has the potential to impact illicit activities in both positive and negative ways. Illicit activities, such as money laundering, terrorism financing, and tax evasion, pose significant threats to the stability and integrity of the financial system. CBDC is different from traditional digital currencies, such as Bitcoin, as it is issued and backed by a central bank and is considered legal tender. CBDC can be used for peer-to-peer transactions, payments at merchants, and cross-border transactions. CBDC can increase the traceability of financial transactions, making it easier to identify and track illicit activities. This is because all CBDC transactions are recorded on a central ledger, allowing regulators and law enforcement agencies to monitor and analyze transactions in real time. CBDC can enhance due diligence by enabling regulators and financial institutions to verify the identity of individuals and businesses that use CBDC. This can help to prevent money laundering and terrorism financing by ensuring that CBDC is only used for legitimate purposes. It can reduce anonymity by requiring users to provide personal information, such as their name and address, when they use CBDC. This can help to prevent the use of CBDC for illicit activities by making it more difficult for individuals and businesses to remain anonymous. CBDC can improve transparency by providing greater visibility into the flow of funds. This can help regulators and law enforcement agencies to identify and track illicit activities and improve their understanding of the financial system.

However, the adoption of CBDC for illicit activities also poses some challenges and risks. The adoption of CBDC also poses significant cybersecurity risks, particularly regarding the risk of cyber-attacks and the theft of personal data. Regulators and central banks would need to develop strong security measures and protocols to protect CBDC transactions and prevent the use of CBDC for illicit activities. The adoption of CBDC also poses privacy concerns, particularly regarding the collection and use of personal data. Regulators and central banks would need to develop privacy regulations and policies that balance the need for transparency and traceability with the right to privacy. The adoption of CBDC also poses technological challenges, particularly regarding the scalability and interoperability of CBDC with other payment systems.

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