PBoC Official Explains Why Digital Yuan Won’t Be Fully Anonymous

PBoC Official Explains Why Digital Yuan Won’t Be Fully Anonymous

Chinese officials are willing to ensure digital anonymity for the country’s central bank digital currencies (CBDCs), but only for a small class of transactions.

Total Anonymity of CBDCs Impossible

According to a local news outlet, an official of the People’s Bank of China (PBoC), Mu Changchun, has said that a completely anonymous digital yuan is not possible given the underlying regulatory measures, local state news media STCN reports. These include requirements related to anti-tax evasion, counter-terrorist financing, and anti-money laundering. He explained,

“ A completely anonymous central bank’s digital currency is not feasible. It is an international consensus that the central bank’s digital currency achieves anonymity on the basis of controllable risks.”

However, this doesn’t mean the digital yuan won’t cater to user’s privacy and financial security.

Changchun said the digital yuan would provide more security and privacy than payment apps like AliPay and WeChat.

The bank official said the CBDC would work under a “controllable anonymity” that would protect the users’ transaction details and personal information. This partial anonymity also means the central bank can monitor transactions for illicit activity while the parties involved remain private.

The first set of CBDC users will be able to open an account with just their mobile number. No further information would be required, and they would enjoy a level of anonymity for transactions. However, this limited surveillance would only be permitted for small-scale transactions.

If a digital yuan user wants to conduct substantial transactions, they would need to provide more personal details to unlock this feature. Changchun says China choosing not to cave into the rising outcry for a totally digital state-backed digital currency is based on international consensus among regulatory agencies worldwide.

The Chinese government has outrightly banned private cryptocurrencies in the country, instead opting for a state-sanctioned digital currency. This address by the head of the country’s DCRI marks the first time the country has shared information on its CBDC program.

Changchun admitted that CBDCs would serve a dual role of being a financial surveillance tool to keep an eye on illicit transactions. According to him, total anonymity would see crimes like terrorist financing, money laundering, and tax evasion go unchecked.

The financial expert said that popular cryptocurrencies like Bitcoin were vetoed due to their propensity to support illegal transactions.

Crypto-related Crimes A Bane To Anonymity

The Chinese government has taken a firm stand against criminal elements operating under the pseudonymous canopy of cryptocurrencies to commit crimes. In a recent roundup of criminals, law enforcement officials have arrested several young men who allegedly used Bitcoin and USDt to launder illicit gains made from drug dealing and online gambling.

The government, which has cited these practices as a major reason for its firm stand against private crypto ownership, has gone as far as closing crypto exchanges in the country.

These recurrent money laundering and tax evasion themes have plagued fellow financial powerhouse-the US- from giving crypto a break. US regulatory agencies have become taciturn and combative, suing any crypto-facing company that it feels has broken any laid-down laws.

Even though the Federal Reserve (central bank equivalent) has since admitted that CBDCs use would feature in the economy, Fed Chief Jerome Powell said they would play a more secondary role to the US dollars.

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Author: Jimmy Aki

Top Chinese Bank Launches Testing for a Digital Yuan “Hardware Wallet” Card

Top Chinese Bank Launches Testing for a Digital Yuan “Hardware Wallet” Card

  • Top Chinese bank launches testing of its “hardware card wallet” for the digital yuan.
  • The card is currently testing Dongcheng District – targeting the elderly.
  • Beijing residents testing the CBDC can also use the wallet to pay for healthcare services.

A local news report, Xinhua Net, confirmed that the Postal Bank of China has launched its biometric hardware wallet card for the digital yuan. The card is still in its testing phase to provide Dongcheng District residents with the ability to pay and transact using the central bank’s digital currency.

The hardware wallet provides users with biometric security to spend their digital yuan using a one-tap system on selected stores. Once the transaction is complete, the card’s ink screen window displays the transaction amount and the wallet balance.

The new card focuses on giving the elderly a more efficient way to use the digital renminbi given the challenges they face with smartphones, Chen Yuejin, Chairman of the Postal Bank of China, said.

“With this card, it is much more convenient to enter and exit public places, and you can pay with just one touch. It is especially suitable for the elderly who have difficulty using smartphones.”

China is the leading country in testing and piloting projects supporting its digital yuan. In the past two years, the government has launched several pilot projects on its CBDC in Beijing and Shenzhen – recently disbursing over $3 million in ‘red envelopes’ to over 50,000 people, the largest pilot yet.

The expedited process of piloting the digital yuan forces central banks around the world to look into launching their own CBDCs to avoid falling behind with China. Despite several analysts touting the digital yuan to replace the dollar, Martin Chorzempa of Peterson Institute for International Economics’ believes there is a long road ahead still.

He believes Chinese electronic payment services lay the toughest roadblock for the digital yuan to become internationalized. Chorzempa said,

“A lot of people talk about (the digital yuan) being a driver of renminbi internationalization.”

“I think they have to beat Alipay and WeChat Pay in China before, I think, that they can make a dent in the U.S. dollar.”

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Author: Lujan Odera

Former PBoC Governor: China Doesn’t Have ‘An Ambition to Replace Existing Currencies’

China’s former head of the central bank said digital yuan could be useful for cross-border trade and support its efforts to promote yuan as an international currency.

Zhou Xiaochuan, who stepped down as governor of the PBOC in 2018, spoke at the Shanghai Financial Forum on Friday. According to him, digital currency allows payments and currency conversions in real-time and “brings new possibilities for interconnection.”

“If you are willing to use it, the yuan can be used for trade and investment,” said Zhou, who has been a leading advocate for China’s sovereign digital currency. He also noted that the digital yuan isn’t intended to replace globally accepted fiat currencies like the US dollar.

“We are not like Libra and we don’t have an ambition to replace existing currencies.”

China has learned a lesson from Diem and took a more cautious approach. The idea is to persuade consumers and merchants to accept digital yuan payments as it quickly resolves “the problem of cross-border remittances.” He said.

“Some countries are worried about the internationalisation of yuan.”

“We can’t push them on sensitive issues and we can’t impose our will. We must avoid the perception of great power chauvinism.”

China is preparing for cross-border testing of digital yuan in partnership with Hong Kong. Additionally, over $3 million in digital yuan was airdropped to 10k residents of Suzhou on Friday. Trials are being run in other cities, including Chengdu, the Xiong’an New Area, and Hong Kong, in collaboration with companies like Didi Chuxing, Meituan, and Bilibili.

Central Banks Divided on Private Sector’s Role

According to a survey by the Official Monetary and Financial Institutions Forum (OMFIF), more than half of the central banks surveyed expect countries to collaborate with the private sector to build and run payments systems.

The central banking and economic policy forum found that central banks are split over whether to work with private sectors in payments as three-quarters of the banks said it was the state’s job to govern such systems.

The survey by the think tank involved 20 central banks and regulators in advanced and developing economies. Bhavin Patel, OMFIF’s head of fintech, said,

“It’s up to the central banks to balance how they approach collaboration – whether it’s setting joint projects together … or if it’s more just making sure that what comes to the market is properly regulated.”

The report was produced with fintech firms that include PayPal, Citigroup, Mastercard, and Novi, the digital wallet division of Facebook. Patel said,

“Regulators need to keep pace with these innovations. New, non-traditional payment entities will emerge as systemically important components of the financial system. Proactive central banks and regulators, keen to harness the benefits of payments innovation without undue policy risks, engage more with industry.”

Demand for more efficient payments is growing, a trend that has accelerated during the coronavirus lockdowns but regulators fear that the wide use of private currencies could lower their control over monetary policy. Just last week, German Finance Minister Olaf Scholz said,

“We must do everything possible to make sure the currency monopoly remains in the hands of states.”

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Author: AnTy

Chinese Tech Firms Didi, Meituan, & Bilibili Launch Lottery-Based Trials for Digital Yuan

Tests for China’s digital yuan are still ongoing as companies continue to join the People’s Bank in its efforts to digitize the currency.

This week, local news source CLS confirmed that three large internet companies had joined the tests in what appears to be a lottery-style trial.

Everyone Welcome

As the news explained, Didi Chuxing, the largest ride-hailing service in the country, had joined commercial products and bike-sharing company Meituan and video-sharing site Bilibili on a lottery-based trial of the digital yuan. The test will focus on Suzhou, a region on the western side of Shanghai.

The report explained that the trial launched earlier today, and it will involve about 10,000 residents in the city. These residents will vie for about 200 digital yuan units each, which they can spend at merchant stores with point-of-sale technology.

In addition to retail spending, the winners can spend the tokens on the three companies’ services. They can order rides on Didi, pay for bike-sharing on Meituan, and spend on new features from Bilibili’s site. It is unclear how long the trial will last, but it continues what appears to be a series of rests and implementations for the digital yuan.

All Hands on Deck

The companies are just a shortlist in a line of corporations looking to test the digital yuan. The Peoples’ Bank has incorporated several other companies for the better part of the year, with names including Alipay and WeChat Pay, the country’s two largest payment processors.

In October, Huawei, the country’s largest smartphone manufacturer, announced on its Weibo channel that its next flagship device – the Mate40 series – will come with a hardware wallet for the digital yuan. Touting it as a channel to be a part of China’s digital revolution, Huawei explained that the wallet would provide optimal privacy and anonymity.

The wallets will also feature dual transactions, ensuring that users can complete transactions by touching two compatible phones, even without any internet connection.

The tests have also gone beyond just tech companies. Economic Information Daily reported in October that gas stations in Shenzhen had begun accepting the asset. As the news medium confirmed, 11 gas stations had been integrated into the program, and more would join.

The program was the brainchild of Guangdong Petroleum, a state-owned oil, and gas firm. Participating outlets come fitted with barcode readers to ensure easy and quick payments. Guangdong praised the asset’s speed and security, explaining that reviews of its use had been positive. It is expected that these trials have ended already.

A similar giveaway to what is happening in Suzhou also occurred in the Luohu District of Shenzhen. Per a Sina Finance report, the district’s government started a program to send ten million units of the asset (worth about $1.5 million) to 50,000 residents via a lottery.

Unlike this program, however, that one focused primarily on retailers and brick-and-mortar shops across the region.

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Author: Jimmy Aki

Japan Joins the CBDC Race With A ‘Digital Yen’ Trial; 30 Major Firms Will Start Experiments In 2021

While China has already successfully run the pilot test of its digital yuan, now Japan is getting ready to do the same.

In its attempt to catch up, Japan’s 30 major firms will begin experiments of issuing a private digital currency next year, said the group’s organizing body on Thursday, reported Reuters.

The group consists of the three largest banks in the country, along with retailers, utilities, brokerages, and telecommunication firms. Using a common settlement platform, the group will conduct the experiments for issuing a digital currency. Hiromi Yamaoka, a former BOJ executive in an online briefing, said,

“Japan has many digital platforms, none of which are big enough to beat cash payments.”

“We don’t want to create another silo-type platform. What we want to do is to create a framework that can make various platforms mutually compatible.”

Recently, the Bank of Japan announced its plan to experiment with issuing a digital yen in a country where cashless payments make up only 20% of total settlement than China’s 70% and the United States’ 45%.

Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group, and Mizuho Financial Group — the megabanks of Japan have already rolled out their own digital payment systems.

Yamaoka said while private banks will be in charge of issuing the digital currency in the experiments, other entities’ prospects also issuing a digital yen won’t be ruled out.

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Author: AnTy

China’s Crackdown on Crypto Rears its Head as BTC Gets “Over-Extended” & PBoC Focuses on DCEP

As China accelerates its digital yuan development, it is taking steps to tighten its control on the cryptocurrency market.

In 2017, during the bull market, the reports came of China banning virtual currencies on domestic cryptocurrency exchanges but permit over-the-counter transactions.

Now, as BTC enjoys a bullish market structure, currently around $13,750, China is further taking more steps towards regulating the market.

Last month, one of the biggest cryptocurrency exchanges of the country, OKEx’s founder, was arrested, which resulted in the platform suspending any withdrawals which are yet to resume.

The platform, however, maintains that the founder has been assisting in a separate investigation.

According to the latest local reports, another exchange, the biggest one this time, Huobi is facing a similar issue; its COO Zhu Jiawei being under police investigation. They have reportedly been planning in advance after the OKEx incident and are not expected to halt withdrawals.

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The exchange Huobi Global took to Twitter to deny the “rumors” of the arrest of a senior executive by local officials and that they are, in fact, “Operating Normally.”

Amidst this, as we reported, the Securities and Futures Commission (SFC) of Hong Kong is planning to propose a new licensing regime under which retail investors are banned from trading virtual currencies.

Additionally, all the crypto platforms operating in the city and overseas ones targeting local investors, are required to obtain a license to protect investors and combat money laundering.

There are also reports that buying and selling crypto may violate foreign exchange control and anti-money laundering laws. Those making profits from their crypto investments failing to pay income tax could also be suspected of tax evasions.

“The timing of the Chinese OTC and exchange crackdowns is no coincidence. The PRC government is sending a strong message about its stance on cryptocurrencies other than the DCEP,” said an executive at the crypto fund The Spartan Group.

However, China’s stance on crypto isn’t anything new, “It just rears its head every now and then,” he said, adding: “BTC was getting over-extended from a short term technical standpoint anyway so this event likely triggers some profit-taking.”

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Author: AnTy

Digital Yuan Pilot Records $300 Million in Transactions But No Launch Yet, says PBOC Governor

The pilot program on the digital yuan rollout across four cities – Shenzhen, Suzhou, Xiong’an, and Chengdu has been smooth, said Yi Gang, governor of China’s central bank People’s Bank of China.

Over 4 million transactions, totaling more than 2 billion yuan ($299 million) in the digital currency so far, have been made, he said.

As per the figures, the digital yuan pilot expanded 21% and 82% from the 3.3 million transactions valued at 1.1 billion yuan, respectively recorded in late August, according to South China Morning Post.

The PBOC pilot discovered 12,000 use cases for DCEP, up 80% from 6,700 ways as of late August. Yi said,

“So far, the experiment and pilot program have been (going) fairly smoothly.”

Legal Framework Needs Completion

The comments were made during the Hong Kong Fintech Week conference on Monday, where Yi was speaking on a virtual panel with Agustin Carstens, head of the Bank for International Settlements, and Klaas Knot, president of the Dutch central bank.

Despite the digital yuan usage expanding rapidly across Chinese cities, Yi said they are in the early stages of developing a central bank digital currency. On the launch of digital yuan, Yi said China first needs to complete,

“A fairly complicated, and complete legal framework and regulations (for digital yuan) that enhances its transparency.”

With DCEP, the world’s second-largest economy is accelerating towards a cashless society. The country’s digital payments transaction volume has actually been expected to surge to 412 trillion yuan by 2025, up from 201 trillion yuan last year.

A Global Framework for CBDC

As we reported, the central bank published a draft law last week aiming to provide the DCEP a legal status.

Yi didn’t say anything about that on Monday but said the PBOC had completed the architectural design of the (CBDC). He further reiterated that the pilots would also run at the Winter Olympics in 2022, for which QR codes, tap-and-go transactions, and other features will be available.

During the panel, which was moderated by the Hong Kong Monetary Authority’s chief executive Eddie Yue, Yi said the PBOC would also collaborate with other central banks to establish a legal framework for CBDs globally. Yi said,

“I would like to cooperate with the Bank of International Settlements, the Financial Stability Board and international central bankers to discuss a legal framework, [fostering] transparency and how to safeguard [the development] of central bank digital currencies.”

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Author: AnTy

$1.3M in Chinese Digital Yuan Were Spent In The Largest DCEP Test Run in Shenzhen Province

China is on the verge of completing trials and pilot programs for its national digital currency for the Yuan, which they are calling DCEP. The CBDC, which has been under development for over half a decade, is currently being put to the test through various government subsidies and as a form of payment in selected provinces in the country.

During the ongoing pilot run, the Shenzhen province has emerged as the largest spender of the digital yuan. As per a published report in South China Morning Post, over 47,000 consumers in Luohu district of Shenzhen province spent a total of 8.8 million yuan (equivalent to $1.3 million) during the week-long trial run for the digital asset.

As per the report, for one of the largest trial runs conducted by the People’s Bank of China, a total of near 2 million people applied for 50,000 digital ‘red packets.’ Each red packet contained 200 yuan equivalent to USD 30.

The airdropped digital yuan worth $1.3 million was spent in 62,788 transactions at 3,389 designated shops. A female user who was among the selected 47,553 consumers took to social media to share her experience and wrote,

“I received a text message every day urging me to spend the red packet before the trial deadline, so I spent the entire 200 yuan in a department store last Friday,”

Users Find the Use of Digital Yuan Quite Easy

Many users who received the airdropped red packets said that spending the national digital currency is quite easy and not much different than WeChat Pay and Alipay.

A state-backed newspaper also reported that around 110 petrol stations would also begin processing payments in digital currency later this month. The newspaper also noted that the processing of the payment for digital yuan is quite similar to the existing payment modes. The only difference between the current payment modes and the national digital yuan is that it won’t charge any additional processing fee.

Before the Shenzhen trial, a total of 3.13 million transactions have been made in the digital yuan, revealed Fan Yifei, a deputy governor at the People’s Bank of China.

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Author: Rebecca Asseh

Euro’s Dominance at Risk of Replacement by Digital Yuan in the Next Five Years: dGen Report

The Euro might be overtaken by China’s digital Yuan as soon as 2025 if the European Union will not have launched a CBDC by then, highlights the latest research report by German-domiciled think tank, dGen. This release which was published on September 9 focuses on the ramifications a major CBDC on the Eurozone as well as the potential of a digital Euro to be ahead of the pack.

As the crypto industry comes of age, regulators have found themselves at a cross-road in the creation of oversight mechanisms. Well, China which began research in this space as early as 2014 recently launched its digital yuan ‘DC/EP’, sparking a hype towards the global adoption of CBCD’s. Since then, a number of central banks including the European Union have floated the idea of piloting their own digital currencies.

The EU progress on CBDC’s has, however, been criticized by prominent contributors in Europe’s blockchain ecosystem including the Head of Frankfurt’s School Blockchain Center, Philipp Sandner,

‘[The] ECB’s reaction has been too slow. Especially, the benefits from a CBDC for the industry, e.g., based on programmable money, are currently neglected. Given Libra and the DC/EP, the ECB has to react quickly to keep its geopolitical position’.

According to the report, the launch of a digital Euro would be strategic for the region to continue its global dominance as the second most held fiat reserve; only this time a digital Euro will be used instead. Consequently, the research notes that a digital Euro has the potential to transform the global economy while acting as the fundamental pillar of a virtual monetary ecosystem in the Eurozone.

U.S Dollar Still Safe!

Unlike the Euro whose odds against the DC/EP are less favorable, dGen predicts that the digital yuan will not unseat the world’s reserve currency, at least not yet. The research highlights China’s political unrest as one of the factors that could hinder its CBDC’s global adoption at level to compete with the U.S dollar. In addition, smaller nations are more likely to adopt a digital dollar as opposed to the yuan given its already established dominance and ease of access globally. The research reads,

“In the coming decade, with the launch of a digital Dollar, digital Yuan, and digital Euro, we predict that smaller nations will take the path of least resistance, and opt for using and storing the digital Dollar.”

Global CBDC Integration Could Hit 60% in the next Decade

Other predictions made by the German think tank include the possibility of a 60% global CBDC integration by 2030. As per the dGen insights, three out of five nations will have completely replaced their fiat currencies with a central bank backed digital asset by then. On this front, China and Bahamas in the West Indies Caribbean have already set a pace based on the CBDC progress within the two jurisdictions.

Last but not least, the report predicted that CBDC’s will have to co-exist with private stablecoins which have now been in the crypto space for quite a while. This is because of their value proposition in the volatile cryptocurrency market as well as the ability to circumvent authorities through blockchain tech, regardless of their position when it comes to digital assets.

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Author: Edwin Munyui

Chinese Ride-Hailing Unicorn, Didi Chuxing, to Pilot Digital Yuan; First Mass Scale Use of DCEP

China’s ‘Uber,’ Didi Chuxing, will test run the digital yuan according to an announcement on July 8. The Chinese ride-hailing unicorn has over 500 million registered users and is optimistic that a ‘strategic partnership’ with the PBoC Digital Currency Research Institute will scale the DCEP adoption.

“Under PBOC’s overall DCEP strategy and operation timeline, DiDi’s DCEP taskforce will design and implement pilot DCEP projects following rigorous safety, security and governance standards.” read the announcement.

With only a few months of being in existence, the digital yuan pilot is already making a debut in China’s shared economy. This comes barely two months since it was first used to partially pay some state employees in pilot provinces. Now that the DCEP will be integrated with Didi Chuxing’s ecosystem, it might just be the beginning of a mass scale adoption as China looks to wipe out the fiat renminbi in circulation.

Notably, Didi Chuxing’s market muscle and financial position will be a big boost for the digital yuan. Currently, this ride-hailing service dominates the Chinese market with a valuation of $56 billion, operating across 400 cities. It also enjoys the backing of big tech like Apple, Softbank, Alibaba, and Tencent. While its value proposition goes a long way in the digital yuan roll out, Didi Chuxing noted that working with the PBoC is strategic for their fundamental goals as well,

“The partnership is a key milestone in DiDi’s ongoing initiatives to enhance the interconnectivity of online and offline economic sectors in China, as the government seeks to support the development of the real economy sectors with innovative financial services,”

China Setting Stage for the Digital Currency Economy

This development is no surprise, given the recent highlights of China’s digital yuan. As other countries continue with debates on adoption, China is miles ahead and could soon launch an official version of the DCEP. A former top executive of the PBoC recently said that the DCEP backend infrastructure is almost complete. However, no comments were made on an official launch date.

Looking at the ongoing works, this date could be sooner than most stakeholders expect. For starters, the digital yuan pilot is being facilitated by China’s banking and tech giants who have been tasked with digital wallet facilities, amongst other ecosystem functions. Also, major food chain retailers like Subway, Starbucks, and McDonald’s are reportedly looking to pilot China’s CBDC as well. Could this be finally sunrise for the project, which has been in the works since 2014? Well, the COVID-19 pandemic might just favor the odds as paradigm shifts to digital economies.

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Author: Edwin Munyui