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PBoC Warns of Telecom Fraud With e-CNY as Pilot Scheme Expands

In the wake of China introducing an anti-telecom internet fraud law for crypto, it is now drawing attention to similar crimes being committed with its central bank digital currency (CBDC), the e-CNY. According to a senior People’s Bank of China (PBoC) official, there are now more than a million criminal suspects that are engaged in online fraud activities in China resulting in more than CNY100 billion loss per year.

Mu Changchun, the director-general of the PBoC’s Digital Currency Research Institute (DRI), made the point in a Modern Banking journal article touching on “controllable anonymity” as a feature of the e-CNY to meet people’s growing demand for privacy protection.

He said that though less data is being collected from e-CNY users unlike traditional banks, its degree of anonymity need not be too high. This is to prevent new soil for criminals, he states. It will also stop a large number of illegal transactions from flowing as electronic payments into the CBDC. If that happens, it will make the e-CNY become a tool for fraud and other crimes like online gambling, money laundering, drug trafficking and even terrorist organization crime.  

The e-CNY needs to guard against risks such as telecom fraud, Changchun noted. also said the PBoC will respect the privacy of e-CNY users and protect their personal information as they focus on preventing telecom fraud risks while meeting anti-money laundering and anti-terrorist financing requirements.

Last month, the Supreme People’s Procuratorate of China issued the Anti-Telecom and Internet Fraud Law to tackle associated crimes. It seeks to prevent, and punish telecom network fraud activities and strengthen efforts against them like helping individuals to carry out activities like money laundering through cryptocurrency. It seems the scope of interest is shifting to the e-CNY which has been reported used for illegal activities in several cases. 

In November, police in Inner Mongolia busted an e-CNY fraud case in which a suspect, surnamed Gao, was arrested in one of its largest cities, Baotou. Police said the tele-scam involved about CNY8 million (US$1.25 million). 

Last month, Chinese police in southeastern China city of Longyan arrested 20 suspects for reportedly engaging in a CNY200 million (US$28 million) money-laundering scheme involving the country’s central bank digital currency. They suspects were accused of running illegal fund settlement services using e-CNY and digital tokens for overseas gambling and telecom scams.

At a time when the yuan was reported to have gained traction globally in 2021—- with cross-border settlements growing 29% by value from the previous year—-the digital currency version being used for any scam-related activity is not a good fit for China’s effort to promote its currency’s use globally.

According to the PBoC’s 2022 RMB Internationalization Report, the growing use of the yuan across borders grew to CNY36.61 trillion ($5.12 trillion) last year—CNY18.51 trillion in receipts and CNY18.1 trillion in payments.
Meanwhile, Changchun’s article is also coming as efforts to keep testing the digital currency across China mainland continues. Fan Yifei, a PBoC deputy governor, announced at a digital finance forum in Suzhou last month that the e-CNY trial program will be expanded to cover four provinces where regional pilots have been taking place. They include Shenzhen in Guangdong province, Suzhou in Jiangsu, the Xiong’an New Area in Hebei, and Chengdu in Sichuan where pilot schemes had been started in 2019.

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