Chinese central bank governor Yi Gang, in a recent speech at the Hong Kong Fintech Week, spoke about the progress of his national digital currency called the digital yuan. He exposed the advances and the adoption of the national digital currency.
During his speech, Yi noted that the digital yuan is positioning itself as an alternative to cash in China, a country with a strong digital payment infrastructure. He added that “Privacy protection is high on our agenda.”
He then described the two-tier payment system that would offer controllable anonymity to users. At the first level, the central bank supplies digital yuan to authorized traders and processes only inter-institutional transaction information. At the second level, authorized traders only collect the personal information necessary for their exchange and circulation services to the public.
Yi promised that the data will be encrypted and stored, and sensitive personal information will be anonymized and not shared with third parties. Users will also be able to make anonymous transactions up to a certain amount, and there will be specialized electronic wallets to facilitate those transactions. The central bank governor noted that anonymity is a double-edged sword and therefore should be treated with care, especially in the financial arena, explaining:
“We recognize that anonymity and transparency are not black and white, and there are many nuances that need to be weighed carefully. In particular, we need to strike a precise balance between protecting individual privacy and combating illegal activities.”
Yi’s comments are in line with the director of the central bank’s digital currency (CBDC) program, Mu Changchun, who in July reiterated a similar stance saying that CBDC does not have to be as anonymous as cash. Mu had said that a completely anonymous CBDC would interfere with the prevention of crimes such as money laundering, terrorist financing, tax evasion and others.
China started its CBDC program as early as 2014 and, after years of development, launched the pilot program in 2019. Since then, the program has been expanded to millions of retail customers across the country. In 2022, the CBDC test has been extended to some of the most populous provinces. The scope of the CBDC trail can be estimated from the fact that the total digital yuan transaction volume exceeded $14 billion in the third quarter of 2022.
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