Money Laundering and the Privacy Design of Central Bank Digital Currency

Zijian Wang
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Zijian Wang: Wilfried Laurier University

Review of Economic Dynamics, 2023, vol. 51, 604-632

Abstract: This paper studies the implications of money laundering for the optimal design of central bank digital currency (CBDC). I build a general equilibrium framework to explicitly allow money laundering by agents and income audits by a government. I find that as long as CBDC offers less anonymity than cash, introducing CBDC will decrease money laundering. However, if CBDC still offers a relatively high level of anonymity but a low interest rate, then introducing CBDC will decrease the output from not only agents who launder money but also agents who do not. If CBDC instead offers low anonymity and a high interest rate, then introducing CBDC can increase aggregate welfare without lowering output. Furthermore, introducing CBDC needs not increase the funding costs of banks or decrease bank lending. (Copyright: Elsevier)

Keywords: Money laundering; Central bank digital currency; Monetary policy; Banking (search for similar items in EconPapers)
JEL-codes: E51 E52 E58 K14 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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DOI: 10.1016/j.red.2023.06.004

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