Although many countries are still pondering using CBDCs, China is determined to push this idea forward by developing and releasing a national digital currency. The People’s Bank of China (PBOC) published a paper on Monday claiming that CBDCs have limited privacy and have not been widely adopted in other economies. The PBOC paper detailed that “replacing physical cash with digital money can track and control the funds flow within society.” After the digital yuan was developed in China, interested individuals are also reading articles on how the Chinese digital currency will change Egypt’s food sector.
The PBOC also claims their investigation into crypto-currencies revealed that these currencies were not widely used for commercial transactions but were more commonly used as speculative assets due to their volatile prices. As the world’s 2nd largest economy, China is at the forefront of many technological and economic changes. As a result, the idea of digital currency has been steadily gaining momentum in China over the past few years. It has become one of the top things on Chinese policymakers’ agenda to explore.
It is evident that China has put a lot of thought into creating digital currency and hopes to leverage this technology to improve financial inclusion and reduce social corruption. However, China’s banks are struggling with billions in bad debts due to its high population density. Many users can still not access a credit score system because they lack identity authentication or an address. Let’s see whether the digital Yuan will have privacy as cryptocurrencies.
Chinese Legislature Has Issued Over 230 Regulations Directly Concerning Digital Currency
Although cryptocurrencies have been banned in mainland China since September 2017, the Chinese legislature recently issued a new regulation. The regulation prohibits the use of cryptocurrency for commercial transactions. The short-term goal of this regulation is to minimize money laundering and regulate information disclosure on digital currency transactions. However, it means that cryptocurrencies were only for commercial transactions within China until the country did not implicate a complete ban on cryptocurrencies.
Why are cryptocurrencies more secure?
Cryptocurrencies are digital and decentralized currency, which are used by people all over the world. Cryptocurrencies provide a safer payment method because they use cryptography to secure their transactions. It has become popular due to its non-intermediated transactions and low fees.
Privacy concerns of digital Yuan:
Since the digital Yuan can be tracked and controlled by its issuer, these digital currencies will have limitations on privacy. The Research Paper published by PBOC has revealed their research into the technology that powers bitcoin. The report reviews the technical elements of bitcoin and other cryptocurrencies. With this information, it is clear that PBOC’s main concern with digital Yuan is the privacy aspect. Based on this, experts don’t think digital Yuan has much privacy. While it is hard to say if CBDCs in china will be a hit or miss, we can assume that Chinese authorities may add some extra features to enhance the privacy of the digital Yuan.
Digital Yuan has a centralized blockchain making it less private:
Although blockchain technology is decentralized, digital Yuan is issued via a centralized system. So even though a central agency issues digital Yuan, it would still be technically a digital currency. However, this has been the only way to regulate digital currency and avoid illegal activities. Chinese authorities are also believed to be working on a distributed ledger technology to ensure users’ privacy and that data on transactions are only shared with authorized users.
Digital Yuan can help in reducing corruption:
It is believed that the digital Yuan may help in reducing corruption in China because of its unique features. The first feature is that the digital currency issuer will have the complete authority to track and control every transaction on a ledger. It means that if a particular transaction has occurred, it can be tracked down easily using a digital Yuan wallet.
The second feature is that blockchain technology provides a great source of evidence because of its decentralized nature. The same technology can have a use case to track every single transaction on blockchain history, which can also have a use case to verify all transactions with cryptographic signatures and checksums.
The PBOC paper also mentions that it investigates cryptocurrencies to study their impact on financial discipline, monetary policy, and investments in artificial intelligence (AI) technology. According to the PBOC’s report, it is evident that the digital Yuan would be mainly used for speculative trading since its primary goal is to improve the liquidity of financial markets.
In 2017, China made it mandatory for all cryptocurrency exchanges in China to register with China’s central bank. They also called upon foreign banks to report on any virtual currency transactions done within their businesses in China and any suspicious transactions. Furthermore, the central bank launched a blockchain technology research center in Shanghai and has established a Blockchain Research Institute to develop related technologies such as digital currency, smart contracts, and distributed applications.
