The Bank of Canada published a staff working paper exploring the anonymity of central bank digital currency (CBDC). Instead of looking at it from a consumer perspective, they explore it from a corporate borrowing angle. A small retail company might borrow money from a bank, but the bank can see the borrower’s debit card receipts used to repay the loan. This isn’t dissimilar to Square, which provides point-of-sale equipment, but another subsidiary grants loans.
A CBDC could have features that put it on a spectrum of anonymity. The paper concludes that the optimal anonymity is at either end of the spectrum, not in the middle. Additionally, competition between deposits and CBDC could hinder low anonymity for a CBDC.
The Canadian game theory paper models two types of entrepreneurial borrowers. There’s a high quality one that is happy to refinance a loan and use its revenues to repay it. And there’s a low quality business that prefers to be opaque about its retail receipts and hence favors cash because it probably won’t make a full repayment. Banks are aware of the different behaviors and allocate more loans to the higher quality companies.
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