Digital yuan prioritizing privacy, crime prevention: PBOC governor

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China’s cen­tral bank must ensure a “del­i­cate bal­ance” between user pri­va­cy pro­tec­tion and illic­it activ­i­ty pre­ven­tion in devel­op­ing its dig­i­tal yuan, the e‑CNY, gov­er­nor of the People’s Bank of Chi­na (PBOC), Yi Gang said on Monday. 

Pri­va­cy pro­tec­tion is one of the top issues on the cen­tral bank’s agen­da, Yi said of China’s cen­tral bank dig­i­tal cur­ren­cy (CBDC), the world’s most advanced among major economies, dur­ing his speech at the Hong Kong Fin­tech Week. 

“In design­ing e‑CNY, [we] try to ensure pri­va­cy pro­tec­tion and finan­cial secu­ri­ty through, by and large, anonymi­ty and man­aged anonymi­ty,” Yi said.

Yi’s words come as the dig­i­tal yuan is con­sis­tent­ly chal­lenged by con­cerns sur­round­ing sov­er­eign con­trol and pri­va­cy. The PBOC has been try­ing to ease the anx­i­ety by repeat­ed­ly stress­ing that com­plete anonymi­ty is infea­si­ble for any CBDC in the world. 

“Anonymi­ty and full dis­clo­sure are not as sim­ple as black and white,” Yi said while under­lin­ing the bal­ance between pri­va­cy pro­tec­tion and com­bat­ing illic­it activ­i­ties that the PBOC is try­ing to achieve. 

The dig­i­tal yuan adopts a two-tier sys­tem, accord­ing to Yi. 

At tier one, the cen­tral bank sup­plies e‑CNY to autho­rized oper­a­tors and process­es “inter-insti­tu­tion­al trans­ac­tions infor­ma­tion only.” 

At tier two, the autho­rized oper­a­tors that man­age e‑CNY cir­cu­la­tion would col­lect, from users, only the per­son­al infor­ma­tion required to process trans­ac­tions, Yi said.

In a white paper released in July 2021, the PBOC not­ed the e‑CNY is not a ful­ly anony­mous sys­tem but sup­ports a tiered “man­aged anonymi­ty” fea­ture, which appeared to have been show­cased in a recent police raid. 

In Sep­tem­ber, police bust­ed a crim­i­nal group that alleged­ly used the dig­i­tal yuan in a near­ly 200 mil­lion yuan (US$27.4 mil­lion) mon­ey laun­der­ing scheme.

“These def­i­nite­ly are the world’s dumb­est thieves,” Richard Tur­rin, a Shang­hai-based fin­tech con­sul­tant and author of “Cash­less: China’s Dig­i­tal Cur­ren­cy Rev­o­lu­tion,” told Forkast in Sep­tem­ber. “There is no prac­ti­cal way for a crim­i­nal to effec­tive­ly laun­der the dig­i­tal yuan, as the author­i­ties could track trans­ac­tion his­to­ry if they obtain a warrant.”

Scams and mon­ey laun­der­ing cas­es relat­ed to the e‑CNY have emerged across Chi­na since last year, with the police report­ed­ly trac­ing dig­i­tal yuan tracks to crack mon­ey laun­der­ing and fraud cas­es in Inner Mon­go­lia, Jiang­su and Henan.

The PBOC is also work­ing with the Hong Kong Mon­e­tary Author­i­ty, the city’s de fac­to cen­tral bank, to strength­en Hong Kong as an inter­na­tion­al finan­cial cen­ter with CBD­Cs, accord­ing to Yi.

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