China’s digital yuan tipped for wider application, while authorities down play privacy fears
- Potential application of the digital yuan could be expanded to the transfer of government funds and as a way of monitoring illegal transactions, researcher says
- Mu Changchun, head of the central bank’s digital currency research institute, says any scrutiny of e-CNY transactions will be ‘strictly in line with laws and regulations’
China should expand payment applications for its digital yuan to areas such as the allocation of government funding, while leveraging its potential to trace money flows to crack down on embezzlement and corruption, a government researcher said on Monday.
“The application scenarios for the digital yuan could be expanded in the future,” said Hong Yong, a fellow with the Ministry of Commerce’s research institute.
“For the distribution of poverty alleviation or demolition funds, [while] the traceability of the digital currency can be used to effectively deter and combat payment deduction and corruption,” he told the People’s Daily, a Communist Party mouthpiece, as anticipation grows about the full-scale launch of the e-CNY.
China has pioneered development of the central bank digital currency, with a research institute chartered in 2016 and trials across the country that have involved hundreds of millions of people.
But the powers it gives authorities to scrutinise the nation’s payments and financial system has raised data privacy concerns, despite promises from the central bank that it will run on a principle of “managed anonymity”.
“Some say that digital yuan infringes on user privacy and everyone will become a little ant with a GPS tag,” said Mu Changchun, head of the central bank’s digital currency research institute, referring to a common fear that every transaction will be recorded in detail. “This is actually a false claim.
Only when a transaction is suspected as illegal or suspicious can authorities inquire about and use personal information
“Only when a transaction is suspected as illegal or suspicious can authorities inquire about and use personal information, according to the law.
“Its scope and usage will be strictly in line with laws and regulations.”
Mu, speaking at a forum in Fuzhou at the weekend, said full anonymity is not an option for central banks and the international consensus is that sovereign digital currencies must comply with regulatory requirements in terms of anti-money-laundering, anti-terrorist financing and combating tax evasion.
He said the Chinese digital currency is designed mainly to replace cash and that user information collected by authorities is “less than that of traditional bank accounts and electronic payments”.
China’s central bank is developing an information protection mechanism, as well as legal protocol for action on an individual digital wallet.
Beijing has set no timetable for the official launch of the e-CNY. Central bank data showed about 4.6 million merchant outlets accept digital currency payments and more than 261 million digital wallets have been opened. Transactions in pilot regions, which span 23 cities including Beijing, Shanghai and Shenzhen, totalled 83 billion yuan (US$12.2 billion) by end-May.
China is also trialling cross-border payments with the United Arab Emirates, Hong Kong, Thailand and the Bank of International Settlements in efforts to explore overseas use of the e-CNY.
