If you look deeper at the news of India’s central bank accepting a “basic” digital rupee as “a safe, robust, and convenient alternative to physical cash,” something jumps out of the “Report on Trends and Progress of Banking in India 2020-21,” released on Tuesday (Dec. 28).
Compared with cash, a central bank digital currency would “offer benefits to users in terms of liquidity, scalability, acceptance, ease of transactions with anonymity and faster settlement,” the Reserve Bank of India (RBI) said in four bland paragraphs on the subject of CBDCs.
It’s the second-to-last one — “ease of transactions with anonymity” — that could be the joker in the pack.
Privacy, and the lack thereof, in CBDCs is a growing concern as more large economies pivot from if to how, and how to when. Those concerns come particularly as China has made clear that its digital yuan CBDC, expected to launch by February, will have some formidable transaction tracing capabilities.
And as the first mover, it has the potential to influence how other CBDCs follow in its privacy footsteps, even in substantially more democratic countries like the U.S., the U.K. and the 27-member European Union, where the CBDC privacy debate has already begun.
Mu Changchun, director of the Digital Currency Research Institute of the People’s Bank of China (PBoC) that is driving the digital yuan project, has used the phrase “controllable anonymity” to describe its goal. This means monitoring transactions in real time to look for criminal activity even as the digital wallets are anonymous to commercial institutions, Mu has said.
Just how anonymized they would be for the authorities, in a country in which criticizing those authorities can be a crime, remains somewhat vague.