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The digital RMB is a legal tender in digital form issued by the People's Bank of China. It is operated by designated operating institutions and exchanged to the public. It is based on a broad account system, supports loose coupling of bank accounts, is equivalent to paper money and coins, has value characteristics and legal compensation, and supports controllable anonymity. At present, the pilot testing of the digital RMB is progressing steadily. There are also many discussions about the "controllable anonymity" of the digital RMB. Some people are worried that the central bank will master user transaction information and infringe on user privacy; others believe that the anonymous nature of the digital RMB will cause the digital RMB to become a tool for crime.
To this end, Mu Changchun gave a detailed interpretation of the "controllable anonymity" of the digital RMB at the 2021 China Development Forum. Mu Changchun said that "controllable anonymity" is an important feature of the digital RMB. On the one hand, it reflects its M0 positioning and guarantees the public's reasonable anonymous transactions and personal information protection needs; on the other hand, it is also an objective need to prevent and combat illegal and criminal activities such as money laundering, terrorist financing, and tax evasion, and maintain financial security. Anonymity: The protection of user privacy is the highest among current payment tools
Mu Changchun pointed out that "the first meaning of controllable anonymity is anonymity, which is to meet the needs of reasonable anonymous payment and privacy protection."
The current payment tools, whether bank cards or WeChat or Alipay, are all bound to the bank account system. Bank account opening is a real-name system, which cannot meet the demand for anonymity. The digital RMB is loosely coupled with bank accounts, which can technically achieve small-amount anonymity. The wallet adopts a hierarchical and classified design, opening digital wallets of different levels according to the degree of KYC (know your customer) to meet the different payment needs of the public. Among them, the wallet with the weakest KYC strength is an anonymous wallet, which can be opened with only a mobile phone number. Of course, the balance and daily transaction limit of this type of wallet are also the lowest, and can only meet daily small-amount payment needs. If you want to make a large payment, you need to upgrade your wallet, and the wallet balance and payment limit will increase with the increase in KYC strength. The consideration of this design is to meet the reasonable privacy protection needs of the public on the one hand, and to prevent the risk of large-amount suspicious transactions on the other hand.
Mu Changchun said, "Some people say that the central bank can obtain users' real identity information by checking mobile phone numbers through telecom operators. This is actually a misunderstanding. Although the payment department of telecom operators is also involved in the research and development of digital RMB, according to the current national laws and regulations, telecom operators are not allowed to disclose mobile phone customer information to third parties such as the central bank, and of course they are not allowed to provide it to their own departments that operate digital RMB. Therefore, wallets opened with mobile phone numbers are completely anonymous to the People's Bank of China and various operating institutions."
The second is the push sub-wallet design, which can protect personal privacy.
In the early pilot experience, everyone may have noticed a detail: the digital RMB wallet can open a sub-wallet and push it to the e-commerce platform. It turns out that when you shop on the e-commerce platform, in the payment link, you have to use the gateway payment, or bind the card to open a quick payment, and fill in all your payment information. What is the result of this method? The e-commerce platform will know all your information. Some personal information should not be known to the platform, just like when you go to a street stall to buy a cabbage, the stall owner should not know the CVV security code of your credit card.
When using digital RMB for payment, we will package and encrypt the user's payment information and push it to the e-commerce platform in the form of a sub-wallet. The platform does not know your personal information, thus ensuring the privacy protection of the user's core information.
In addition, we have also carried out a lot of technical and institutional designs to ensure user privacy and security. For example, digital RMB wallets use ID anonymization technology to process, and all personal information data between wallets is anonymous to counterparties, operating institutions, and other commercial institutions. Digital RMB strictly follows the requirements of relevant laws, regulations, and technical standards such as the "Cybersecurity Law", "Civil Code", and "Information Security Technology Personal Information Security Specifications" to establish a personal information protection system and internal control management mechanism, de-identify all customer information, implement customer information protection management processes, and ensure personal information security.
Mu Changchun said, "In short, the protection of user privacy by digital RMB is the highest level among the current payment tools." Controllable: Achieving anonymity based on controllable risks is an international consensus
Mu Changchun pointed out, "The second meaning of controllable anonymity is controllability. While protecting reasonable anonymity needs, we must also maintain the ability to combat criminal behavior. We cannot be too biased towards either side. If we lean towards either side, there will be very big problems."
First, the anonymity of the central bank's digital currency is limited anonymity based on the premise that risks are controllable. Completely anonymous central bank digital currency is not feasible. In "Digital Currency and the Future of the Monetary System", Agustín Carstens, President of the Bank for International Settlements, clearly pointed out that the concept of complete anonymity is unrealistic and a completely anonymous system will not exist. He believes that the vast majority of users will accept that a trusted institution such as a bank or public service department will keep basic information, and retaining a certain level of identity recognition is essential for the security of the payment system, anti-corruption, anti-money laundering, and anti-terrorist financing. A balance needs to be sought between convenience and traceability. Similarly, the report "Central Bank Digital Currency: Basic Principles and Core Features" jointly compiled and released by the Bank for International Settlements and seven central banks including the European Central Bank and the Federal Reserve also rejected the possibility of complete anonymity. The report pointed out that "although some people believe that the main benefit of central bank digital currency may be a certain degree of electronic payment anonymity, complete anonymity is unreasonable. Although the requirements of anti-money laundering and anti-terrorist financing are not the core goals of central banks, nor will they be the main motivation for issuing central bank digital currencies, the design of central bank digital currencies should meet these requirements."
Second, the anonymous exploration of central bank digital currency cannot violate regulatory provisions such as anti-money laundering, anti-terrorist financing and anti-tax evasion. The Financial Action Task Force (FATF) also emphasized that central bank digital currency should fulfill the "three anti" obligations. The "FATF Report to the G20 Finance Ministers and Central Bank Governors on Stablecoins" pointed out that "Compared with cash, central bank digital currency may bring greater money laundering and terrorist financing risks. Because central bank digital currency can be provided to the public for retail payments or as an account, and in theory allows anonymous peer-to-peer transactions. In this case, central bank digital currency can provide liquidity and anonymity close to cash, and is more portable than cash. Because central bank digital currency will be supported by the central bank of its jurisdiction, it is likely to be widely accepted and widely used. The combination of anonymity, portability and widespread use is very attractive to criminals and terrorists for the purpose of money laundering and terrorist financing."
FATF made it clear that “once a central bank digital currency is established, financial institutions, including designated non-financial institutions, and virtual asset providers that transact with central bank digital currency will be subject to the same anti-money laundering and counter-terrorist financing obligations as legal tender or cash. Customer transactions using central bank digital currency will be subject to the same customer due diligence obligations as electronic transactions using legal tender.”
It can be seen that complete anonymity has never been a consideration for central banks’ digital currencies. Only limited anonymity under the premise of complying with the “three anti-corruption” and other regulatory requirements is an international consensus. As mentioned earlier, when opening a digital wallet with a mobile phone number, the People’s Bank of China does not know the user’s real identity. So how can we maintain the ability to combat criminal behavior?
Mu Changchun said, "For example, after big data analysis, all the evidence shows that a certain user is committing telecom fraud, but we don't know the real identity of this person, so we submit the evidence to the competent authorities, and the law enforcement department will retrieve the user's real identity information from the telecom operator and the bank in accordance with the law. In this way, a balance is achieved, while meeting the reasonable anonymity needs of most people in daily life, we can also maintain the ability to combat criminal activities."
He believes that if we only emphasize the protection of people's privacy and ignore the ability of digital RMB to combat crime, or if the cost of combating crime is extremely high due to over-emphasis on anonymity, what consequences will it lead to? Take Bitcoin for example. In fact, Bitcoin is not completely anonymous, but because the cost of tracking user information is very high, some people use Bitcoin to conduct illegal transactions, such as drug trafficking, arms trafficking, and human trafficking. Many online gambling in my country are realized through Tether (USDT) plus Bitcoin.
Another example is telecommunications fraud. At present, crimes such as telecommunications fraud are still very rampant even with full real-name verification. Under the traditional bank account system, real-name verification is required to open an account, and nine elements of information such as user name, ID number, validity period, and contact information are collected. Even with such strict customer identity identification measures and continuous due diligence, cross-verification and other risk prevention and control measures, it is still impossible to prevent criminals from using bank accounts and electronic payment tools for online gambling and telecommunications fraud. Currently, there are more than 1 million criminals engaged in online fraud activities across the country, causing direct economic losses of more than 100 billion yuan each year. Various types of online gambling cases are also emerging in an endless stream. In 2019, the public security organs cracked more than 7,200 criminal cases of online gambling.
Mu Changchun said that if the digital RMB is too anonymous, it may be targeted by criminals and turned into a tool for illegal transactions such as pornography, gambling and drugs. At the same time, the digital RMB adopts the design of "small amounts are anonymous, large amounts are traceable" in the hope of reassuring the people. If telecommunications fraud using digital RMB occurs, it can help the people get their money back and protect their property safety. Therefore, it is an international consensus that the central bank's digital currency can achieve anonymity based on controllable risks. In order to maintain financial security and stability, central banks and international organizations in various countries will take risk prevention as an important prerequisite when exploring the anonymous characteristics of the central bank's digital currency. Designs that cannot meet the requirements of anti-money laundering, anti-terrorist financing and anti-tax evasion will be vetoed. (21st Century Business Herald)
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