China’s central bank governor Yi Gang, in a recent speech at Hong Kong Fintech Week, talked about the progress of their country’s digital currency called the digital yuan. He outlined the progress and use of the country’s digital currency.
During his speech, Yi noted that the digital yuan is positioned as an alternative to cash in China, a country with a robust digital payment infrastructure. He added that “privacy protection is one of the top issues on our agenda.”
He went on to describe a two-layer payment system that would offer users controllable privacy. In stage one, the central bank supplies digital yuan to authorized operators and processes transaction information between institutions only. In the second stage, authorized operators only collect personal information necessary for their exchange and distribution services to the public.
Yi promises that data will be encrypted and stored and, personal sensitive information will be kept confidential and not shared with third parties. Users can also make anonymous transactions up to a certain amount, and there will be a dedicated e-wallet to facilitate such transactions. The governor of the central bank stated that anonymity is a double-edged sword and must therefore be handled with care, especially in the financial sphere and explained:
“We recognize that anonymity and transparency are not black and white, and there are many nuances that need to be carefully weighed. In particular, we need to strike the right balance between protecting individual privacy and combating illegal activity.”
Yi’s comments are in line with the head of the central bank’s digital currency (CBDC) program Mu Changchun, who in July reiterated a similar stance saying CBDCs need not be anonymous like cash. Mu has said that a fully anonymous CBDC will disrupt the prevention of crimes such as money laundering, terrorist financing, tax evasion and others.
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China started its CBDC program as early as 2014 and, after years of development, launched a pilot in 2019. Since then, the program has expanded to millions of retail customers across the country. In 2022, CBDC testing has expanded to some of the most populous regions. The extent of CBDC’s footprint can be estimated from the fact that the total transaction volume of digital yuan will surpass $14 billion by the third quarter of 2022.