China’s Central Bank Says The Digital Yuan Will Offer ‘Controlled Privacy’
While the success China’s digital yuan project has seen so far has been tremendous, the country’s efforts to launch a national digital currency have frequently encountered roadblocks. One of the biggest and most persistent roadblocks the project has faced were the privacy concerns regarding the use of the digital yuan.
With China’s ever-tightening grip over its citizens’ lives, many experts, both domestic and foreign, have voiced their concerns over the potential dangers of having virtually every transaction in the country available to the state on a transparent ledger. Chinese citizens have been worried that downloading digital wallets for the upcoming DCEP would share too much of their personal information with the government, while merchants and banks are lobbying to eschew privacy protection altogether as it makes payments less secure.
This presented China with a slippery slope, as leaning too much on one side would alienate both a massive number of users and a massive portion of the market.
Mu Changchun, the director of the Digital Currency Research Institute at the People’s Bank of China (PBoC), addressed this issue during the 2021 China Development Forum held during the weekend. Mu explained that the digital yuan represents a legal tender in digital form and, as such, offers an important feature—” controlled privacy.”
The digital yuan’s “controlled privacy” means that the country will be in control of which transactions remain relatively anonymous and which are disclosed to merchants and third-party payment providers in the digital yuan ecosystem. According to Mu, relatively small transactions using the digital yuan would remain anonymous “to a reasonable extent.” Users sending small payments to e-commerce platforms will have their information encrypted in their wallets, preventing the merchant from gaining access to personal information. The telecoms operators involved in the development of the digital yuan also won’t be allowed to disclose customer information from mobile phones to third parties, even if the third party is the country’s central bank.
However, in the case of large transactions, the central bank reserved the right to control and monitor its users. While there’s still no consensus over what constitutes a “large” transaction, Mu made it clear that the country will be targeting anything that looks even remotely suspicious.
“The anonymity of the central bank’s digital currency is predicated on controlled risk, and a completely anonymous central bank digital currency is not feasible,” Mu said.
According to a report from Block Beats, the central bank believes that the digital yuan should “maintain the ability to fight crime.” This means that providing “too much privacy” will make the digital yuan a go-to trading tool for pornography, gambling, drugs, and money laundering. The bank also noted that if the upcoming digital yuan fails to meet the anti-money laundering, anti-terrorist financing, and anti-tax evasion policies enforced by the PBoC, it would reject the project and prevent it from launching.