China is famously skeptical of cryptocurrencies, which could undermine government’s control over an economy that is heavily influenced by political decisions. To counter the decentralization trend that crypto brings, China plans to issue its own sovereign e-yuan. This China digital currency triggers concerns over the collection and use of personal data.
What is China Digital Currency or E-Yuan?
China is currently experimenting a sovereign digital currency, issued by its central bank. While Bitcoin is decentralized, this China digital currency is controlled by the central bank.
Therefore, this could result in the creation of a very large database with citizens’ financial data, spending habits, etc. Although the primary goal would be to get a better understanding of the economy and to combat money laundering and fraud, it could as easily be used for surveillance purposes.
The political agenda behind this innovation is what worries most observers.
Would China’s digital currency be governed by the GDPR or other privacy regulations?
Yes, for the processing personal data that relate to individuals in the EU. All GDPR requirements would apply, including the restrictions on data transfers to China. But there are no international regulations on data protection to alleviate privacy concerns around the China digital currency. Countries with weak data protection rules may be vulnerable to that kind of financial surveillance from such centralized digital currency.
The financial data are not anonymous and should fall in the scope of China’s (Draft) Personal Information Protection Law as well (for individuals in China) – but, of course, that will ultimately offer little protection if an individual is suspected of money laundering or terrorism financing.
What are the pros and cons of this massive centralized repository of financial data?
The biggest pro is the knowledge gain on money flows and transactions, with a high level of precision. A government with that kind of information will be able to shape better policies to increase its financial stability. Of course, it means that individuals’ transactions are now all recorded and stored by government agencies.
That can be seen as problematic, but in practice people aren’t reticent to have their transactions recorded: Wechat and Alipay are so popular in China that paying in cash can now be difficult. In Europe (probably in the US too?), contactless payment via bank card leads to similar results.
How significant is this new technology in terms of the world adopting digital currencies? Is this a game-changer?
The knowledge gained from the data will hopefully improve financial governance and the economic stability. Beyond concerns for data privacy, this will revive issues on international use of currencies and for global politics and influence, but it’s still too early to tell.