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Home Crypto

Chinese Central Bank Claims that CBDC will have “Privacy Protection”

BlockNews Team by BlockNews Team
November 8, 2022
in Crypto, Media, Politics
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In a recent lecture at Hong Kong Fintech Week, Yi Gang, the Chinese central bank governor, discussed the development of China’s national digital money, e-CNY. He described the country’s latest central bank digital currency (CBDC) evolution and widespread use.

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Yi mentioned in his address that the digital yuan is being promoted as a viable alternative to cash in the country due to the country’s advanced electronic payment system. He then said that privacy protection is one of the priorities to keep the citizens safe from anybody watching their money in the respective banks.

He then explained the two-tiered payment mechanism that allows consumers with adjustable anonymity. At the first tier, the bank processes only transaction data between affiliated institutions and distributes digital yuan to approved operators. Regarding personal data, the official transactors at tier 2 gather essentials for exchange and circulation to customers.

Fine Line Between Anonymity and Transparency

Yi assured that all data would be stored and that any personally identifiable information would be de-identified before being stored or transmitted. Citizens will be provided with authorized e-wallets to make anonymous purchases up to a fixed amount.

The head of the central bank warned that making transactions while incognito might have positive and negative consequences, especially in the financial sector.

In a rough report translation, Governor Yi stated, “We understand that various shades of gray between anonymity and transparency must be considered. In particular, we need to find a middle ground between people’s right to privacy and the need to crack down on criminal behavior.”

Mu Changchun, head of the CBDC program, said that the e-CNY requires little anonymity as cash. Thus Yi’s views are by what he has been saying.

Mu contended that the fight against financial crimes, including terrorism financing, money laundering, and tax evasion, would be ongoing problems due to the CBDC, which allows secret payments.

e-CNY Now Progressing

After years of planning, China finally launched the trial phase of its CBDC program in 2019. Millions more retailers have been added to the program since its public release.

Some of the most populous provinces have been testing the use case of CBDC since the start of this year. In the third quarter of 2022, the total amount of e-CNY transactions had surpassed $14 billion, providing an estimate of the scope for the CBDC.

The Chinese government banned all forms of Bitcoin mining in 2021. In 2022, it has been testing CBDC as a transaction for public transportation. So far, feedback from citizens shows that they are OK with how it works since e-CNY streamlines the process of paying in buses and trains. 

Governments Favor CBDCs over Crypto

While the concept behind a CBDC revolves around the government monitoring individuals’ transactions, central banks claim that citizens can still make anonymous payments, such as in the discussion above. A CBDC is the opposite of cryptocurrencies since the latter does not include central banks taking hold of the money. Instead, the money is entirely owned by the user. 

The way crypto works, such as Bitcoin being more volatile in the market and younger investors making millions of dollars quickly, has made most governments question the legitimacy of these digital assets. 

After all, there have been numerous reports about illegal purchases (primarily drugs) and money laundering using Bitcoin and Ethereum, which have forced departments such as the Federal Bank and the Securities and Exchange Commission to step in and investigate what is going on in the crypto market. 

Yet, top financial experts and investors defended the use case of crypto as the money goes 100% to the users, not with partial bank ownership. Turning Bitcoin into legal tender is still controversial among authorities, but as the world progresses, money becomes more than just stacks of paper and coins. That is why central banks are looking to make a new system for digital currencies that will drive mass adoption by citizens but with the security of the state.

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