On Saturday, Mu Changchun, Director of China’s central bank Digital Currency Research Institute, clarified how the digital yuan (e-CNY) achieves privacy and “controllable anonymity”. Also related to central bank digital currency (CBDC), another digital renminbi giveaway was launched in Changsha, Hunan. This city was not on the first phase pilot list, which marks an expansion of China’s digital currency testing.
Last year we revealed that the Chinese CBDC has four wallet types with increasing transaction limits allowed. Talking at the China Development Forum, Mu Changchun spoke about the anonymous version that allows a maximum of 500 yuan ($77) per payment, a daily limit of 1,000 yuan ($154) and 10,000 yuan ($1536) per month (according to data from last year).
These sorts of wallets can be opened with just a mobile phone number. He clarified that phone companies are not allowed to share real names and other personal data with the central bank by law. Hence these wallets are entirely anonymous to the central bank.
So what if these are abused and used for nefarious purposes? If big data analysis highlights this behavior, the central bank will refer them to law enforcement, and presumably, the authorities will demand the real identity.
Mu Changchun noted that currently, bank accounts are linked to identity and hence not anonymous. “Digital RMB is loosely coupled with bank accounts and can technically achieve small amounts anonymously,” he said.
To get any of the other three wallet types, some level of know your customer (KYC) compliance needs to be completed. The higher amounts require significantly more KYC. Based on last year’s data, there’s a big jump with wallet types 3 and 2 allowing transactions of 2,000 yuan ($307) and 5,000 yuan ($768), and wallet type 1 potentially allowing transactions up to 50,000 yuan ($7,681).
Another issue raised is how privacy is protected for e-commerce transactions. Payment is made to e-commerce platforms such as JD.com via a sub-wallet, which means the platform doesn’t access personal information or transactions made by the main wallet.
Digital yuan trials
Turning to the digital yuan trials, the latest digital yuan giveaway is happening in Changsha, Hunan Province. We found an official announcement of plans but not of the formal launch. However, applications are now open.
When the original testing locations were announced, the regions were Shenzhen, Suzhou, Xiong’an, Chengdu, and future Winter Olympics locations (Beijing). Tests for all but the Xiong’an new city have been officially announced. So this latest one seems to mark the start of the next stage in testing.
The City’s finance department said that in November 2020, Changsha was officially approved as part of the second batch of digital RMB pilot cities.
Previous giveaways were for 200 yuan ($31) and were managed centrally. This time applications are via participating banks and for much smaller amounts. According to Sina, the Bank of Communications is offering 50,000 giveaways of 20 yuan ($3). Bank of China is offering 20,000 lots of 8.8 yuan ($1.35) and the Agricultural Bank of China is also giving away 8.8 yuan ($1.35) until March 31.
Some of the highlights of the latest trial are offline payment and a hardware-based card wallet from ExcelSecu. Users of the digital yuan will be eligible for discounts such as a 60 yuan ($9) off when refueling a car if more than 228 yuan ($35) is spent.
This phase of testing seems to dispense with the stronger incentives of upfront larger giveaways of 200 yuan ($31) and instead replace them with smaller incentives. Perhaps testing consumer appetite.