China’s central bank digital currency (CBDC) should not be as anonymous as cash, said the head of the Digital Currency Institute of the People’s Bank of China (PBOC).

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Digital Yuan Project Manager Mu Changchun spoke China’s CBDC project at the 5th Digital China Construction Summit on July 24, according to local financial publication Sina Finance.

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Mu said at the event that since the debut of the digital yuan in 2020, China’s central bank has never sought complete anonymity for the project. Instead, the PBoC is working to provide only limited anonymity in line with global anti-money laundering (AML) regulations, the official said.

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Mu pointed out that Chinese authorities should have access to CBDC data on people suspected of committing crimes. According to the official, partial anonymity is an important feature of the digital yuan project, as it guarantees the confidentiality of transactions and the protection of personal information.

However, a completely anonymous CBDC will interfere with the prevention of crimes such as money laundering, terrorist financing, tax evasion and others, he added.

“While cash is associated with greater anonymity, it is less mobile and easier to use in large quantities than digital currency,” Mu said. “The inconvenient nature of carrying cash increases the friction around money laundering and terrorist financing. Therefore, the tolerance for the anonymity of funds is relatively low,” the official said, adding:

“Central bank digital currency is more portable. If they provide the same anonymity as cash, it will make illegal transactions such as money laundering much easier. Therefore, a central bank digital currency should not have the same anonymity as cash.”

Mu went on to say that regulators risk facing “serious consequences” if they decide to focus only on protecting privacy and ignore the risks associated with financial crime. “Freedom without limits is not true freedom,” he added.

Despite phasing out anonymous financial transactions online, the PBOC is still working to keep the digital yuan private. According to the head of the People’s Bank of China, Yi Gan, the digital yuan claims to have a higher level of privacy than payment applications.

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The issue of user privacy has become one of the biggest issues associated with CBDC projects around the world. Regulators have been puzzled about how to maintain digital privacy as well as track transactions to prevent illegal financial activity.

In May, the European Central Bank (ECB) suggested that “CBDC with anonymity” is preferable to traditional digital payments such as bank deposits in another digital euro working paper. The proposal comes shortly after the ECB acknowledged that the design of digital euros was missing privacy options.