- The Chinese CBDC project manager believes that a digital currency should not offer too much anonymity, as this would facilitate criminal activities.
- Privacy is also a difficult issue for many other CBDC projects.
China’s central bank digital currency (CBDC) is not supposed to be as anonymous as cash, as explained by the head of the Institute of Digital Currencies of the Chinese Central bank PBoC.
The head of the project for the digital yuan Mu Changchun spoke about the Chinese CBDC project at the 5th Digital China Construction Summit on Monday, as reported by the local business news platform Sina Finance.
Since the introduction of the digital yuan in 2020, the Chinese central bank has never sought complete anonymity for the project, Mu said at the event. Instead, the PBoC has worked to provide limited anonymity in order to comply with global anti-money laundering (AML) regulations, the project manager continued.
The Chinese authorities should be able to access the CBDC data on people accused of a crime, as Mu explained. However, according to the official, partial anonymity is an important feature of the digital yuan, as it ensures the confidentiality of transactions and the protection of personal data.
However, a completely anonymous CBDC would interfere with the thwarting of crimes such as money laundering, terrorist financing and tax evasion, he added.
He also stressed that although cash offers more anonymity, it is more difficult to carry and use in large quantities than a digital currency. “Since it is so inconvenient to carry cash with you, money laundering and terrorist financing is made more difficult. Therefore, the tolerance to the anonymity of cash is relatively low, ” says the project manager. In addition, he said:
“The central bank digital currency is more portable. If it offers the same anonymity as cash, it will make illegal transactions such as money laundering considerably easier. Therefore, the Central Bank’s digital currency should not provide the same anonymity as cash.”
Mu further stated that regulators would risk “serious consequences” if they focus only on protecting privacy and ignore the risks associated with white-collar crime. “Freedom without restriction is not true freedom,” he added.
While the PBoC has rejected anonymous online financial transactions, it is still working to protect privacy in the digital yuan. According to Yi Gang, the governor of the PBoC, the digital yuan has the claim to offer more privacy than payment apps.
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The issue of protecting users’ privacy has turned out to be one of the biggest issues related to CBDC projects around the world. Regulators are wondering how to protect digital privacy while tracking transactions to prevent illegal financial activity.
In May, the European Central Bank (ECB) proposed in a working paper on the digital euro that a “CBDC with anonymity” was preferable to traditional digital payments such as bank deposits. This proposal came shortly after the ECB admitted that there was a lack of data protection options in the proposals for the digital euro.