Beijing vows stronger laws, limits on monitoring e-CNY
Head of digital currency body says data will only be tracked in cases of suspected illegal activity
China is moving to allay public concerns about data protection and privacy in using the digital yuan, vowing to implement clear laws concerning the monitoring of digital wallets.
The country is a forerunner in the development of a sovereign digital currency, known locally as the e-CNY, rolling out trials in 23 cities, including Beijing, Shanghai and Shenzhen since late 2019.
Central bank data shows about 4.6 million merchants now accept the digital currency and more than 261 million digital wallets have been opened. Transactions in pilot regions totalled 83 billion yuan (HK$91.5 billion) by the end of May.
Despite the progress, worries have emerged about the government’s ability to track user information and the potential for competition with long-established digital payment platforms, Alipay and WeChat Pay.
“To ensure managed anonymity, we need to strengthen legislation and improve top-level design,” Mu Changchun, head of the People’s Bank of China (PBOC) digital currency research institute, wrote in September’s Modern Bankers magazine.
User information can only be analysed and monitored when transactions are suspected of violating laws concerning money laundering, terrorist financing or tax evasion, Mu said.
“We need to ensure there is a limited scope for user information to be used,” he said.
The design of e-CNY wallets is based on the principle of keeping small-sum transactions anonymous, but larger ones traceable, the official said.
Users can open four types of digital wallets, with daily transaction caps corresponding to how much personal information a user provides.
The lowest value wallet, with a daily cap of 2,000 yuan, can be created with just a mobile phone number, which will not be shared by telecoms operators to third parties like the central bank.
Mu said the wearable payment devices used in the 2022 Winter Olympics were embedded with an anonymous wallet that enabled small offline payments.
While the digital yuan has been trialled mostly in China, it has also been tested in crossborder payment scenarios with Thailand, the United Arab Emirates, and Hong Kong.
There are high hopes the e-CNY will boost international use of China’s currency and challenge US dollar hegemony, though Beijing has said the focus is domestic retail sales and improved efficiency and security.
The PBOC drafted a legal amendment in late 2020 to legalise the digital yuan, though it still awaits lawmakers’ review and final approval. “The digital yuan and physical yuan will coexist in the long run,” Mu said.