CBDC and trust in A central bank: transitivity of preferences vs. the privacy paradox

Abstract

The privacy and anonymity of transactions are considered some of the biggest challenges when
designing Central Bank Digital Currencies (CBDC). While many surveys show that people strongly
prefer privacy in their transactions, behavioral theories suggest that human behaviour in digital
spaces is more complex, a phenomenon known as the privacy paradox. The research aims to
measure privacy preferences in specific situations and examine how these preferences influence
choices between anonymous transactions versus the design of CBDC functionality. The study
used the ANOVA method to determine if there were significant differences between groups
based on privacy preferences. Survey data from respondents in emerging markets showed a mild
form of the privacy paradox. The research measured privacy tendencies in three areas: general,
digital, and financial environments, and found a statistically significant correlation between
these measures. However, the respondents' privacy preferences did not consistently align with
their choices between transaction anonymity and CBDC functionality, nor did they consistently
relate to trust in central banks as privacy guarantors or the importance of central bank inde-
pendence for ensuring privacy. The ANOVA test found no significant differences in privacy pref-
erences between respondents who prioritized anonymity or functionality, or between those who
trusted or did not trust central banks to guarantee privacy and their independence in doing so.
This suggests that when faced with complex decisions, people may exhibit intricate patterns of
preference, which is crucial for optimizing CBDC design.