China promises its digital currency will offer 'controllable anonymity'
This means personal info will be captured but not used – unless you're a suspected crim
The governor of the People's Bank of China, Yi Gang, has delivered a speech in which he outlined the concept of "controllable anonymity" for the nation's digital currency.
Speaking at Hong Kong's FinTech week, Yi said the Digital Yuan (E-RMB) is being positioned as an alternative to cash in circulation.
That's not an entirely novel proposition. Banknotes and coins are a physical token indicating a liability guaranteed by a central bank (and once you put the physical tokens into a bank, that institution has a liability to provide you with tokens of the same value). Central Bank digital currencies (CBDCs) are a digital token that creates the same liability but are also designed to offer the same kind of peer-to-peer convenience as cash – you should just be able to hand over CBDCs to anyone else.
But of course, digital tokens can't be handed over in the same way as is possible with a physical token – they need computing devices to facilitate the exchange. And it's a rare computing device that doesn't detail at least a tiny amount of information about its users.
Yi's speech therefore explained how China intends to handle that information.
He opened by explaining that one use of digital currencies is for wholesale transactions among financial institutions. Individuals don't need to worry about those.
The second use is as a cash substitute, and Yi explained that operating institutions will "collect data in accordance with the 'minimum and necessary' principle … to provide digital RMB exchange and circulation services to the public."
Yi promised that data will be encrypted and stored, and personal sensitive information will be anonymized and not shared with third parties. So if you use the E-RMB to shop, your use of the digital currency will be recorded.
But not for small transactions. Yi said four types of e-wallet will be created that allow low-value anonymous transactions online and offline.
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"We recognize that anonymity and transparency are not black and white, and there are many nuances that need to be carefully weighed," Yi said. "In particular, we need to strike a precise balance between protecting individual privacy and combating illegal activities."
China's government detests all forms of corruption and works hard to root it out. If that means lawful lookups of digital transactions, so be it. However, it is not unknown for corruption charges to be laid when the alleged activity runs counter to orthodoxy or threatens a political power base rather than representing actual perversion of processes or abuse of laws.
Yi's speech was delivered on the same day that India's Reserve Bank announced [PDF] trials of its own CBDC – the Digital Rupee.
Like China, India plans both retail and wholesale versions of its currency, respectively named the Digital Rupee (e₹) and Digital Rupee – Wholesale segment (e₹-W).
The pilot will test the currency's utility for interbank settlements, with more wholesale transactions and cross-border payments to be tested in future experiments.
Singapore's also staging its FinTech Week this week, and one of the activities is a test of tokenized Singapore Dollar vouchers. When used at participating merchants, the vouchers see funds flow instantly – rather than the two or more days required by other payment systems. ®