China’s digital yuan is one of the earliest CBDCs whose pilot phase has expanded to include millions of users and billions in transaction volume.
Chinese central bank governor Yi Gang, in a recent speech at Hong Kong Fintech Week, talked about the progress of their national digital currency called the digital yuan. He outlined the progress and the adoption of the national digital currency.
During his speech, Yi noted that the digital yuan is being 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 of the issue on our agenda.”
He went on to describe the two-layer payment system that would offer controllable anonymity to the users. At tier one, the central bank supplies digital yuan to the authorized operators and processes inter-institutional transaction information only. At tier two, the authorized operators only collect the personal information necessary for their exchange and circulation services to the public.
Yi promised that data will be encrypted and stored and, personal sensitive information would be anonymized and not shared with third parties. Users can also make anonymous transactions up to a certain amount, and there will be specialized e-wallets to facilitate those transactions. The central bank governor noted that anonymity is a two-faced sword and thus must be dealt with carefully, especially in the financial ream 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 a precise balance between protecting individual privacy and combating illegal activities.”
Yi’s comments are in line with the central bank digital currency (CBDC) program head Mu Changchun, who in July reiterated a similar stance saying CBDC doesn’t have to be as anonymous as cash. Mu had said that a completely anonymous CBDC would interfere with the prevention of crimes like money laundering, terrorism financing, tax evasion and others.
China started its CBDC program as early as 2014 and, after years of development, launched the pilot in 2019. Since then, the program has expanded to millions of retail customers across the country. In 2022, the CBDC testing has expanded to some of the most populous provinces. The extent of the CBDC trail can be estimated from the fact that the total digital yuan transaction volume crossed $14 billion by the third quarter of 2022.