CBDC and cryptocurrency, data privacy problem in Asia
At the China Conference: Southeast Asia 2022 virtual conference took place from March 23 – 24, 2022, Benedicte Nolens, head of the Hong Kong Centre at the BIS Innovation Hub has stated: “There is a real tension between data privacy and financial compliance.” This is not just a statement, but a reflection of reality as this issue has stuck around in society for quite some time now.
As a panelist at the session titled “How are digital currencies set to impact the region’s fintech ecosystem?”, Nolens said that she sees the financial ecosystems of the future to be multifaceted.
Specifically, this ecosystem is where digital currencies coexist with traditional financial instruments and methods of payment. These include wholesale CBDC, retail CBDC, cryptocurrency, stable coins, credit cards, wallets and bank accounts.
However, as this type of aspect gained more and more popular within society, we must all remain conscious about the most important factor, or the most vulnerable factor in the digital world, data privacy.
Although as normal users of the Internet, we have seen a lot of hacking activities, identity thieves but for cryptocurrency and online financial transactions, most people won’t have too much suspicion about whether or not their identity and privacy are kept safe.
However, is that really the case?
According to Nolens, CBDC and cryptocurrency need to have more protection and management on data privacy and financial compliance due to anti-money laundering (AML) regulations governing crypto exchanges.
Harmonizing CBDC and cryptocurrency, data privacy
The matter of harmonizing the data privacy obligations and the financial commitment will be hard math to solve. However, this must be done if the society is going to achieve a great economic boost, at the same time protecting the rights of participants.
On this matter, Nolens stated: “So now, data privacy actually in that sense, needs to be distinguished from anonymity. Let’s say data privacy regulations and ordinances, don’t protect anonymity; they protect privacy which means they protect the giving out of your personal data so there probably is a balance that can be achieved therebetween financial compliance and data privacy. But let’s be clear, it’s not anonymity.”
Regarding cryptocurrency and data privacy, she said: “Every single regulator that has actually allowed cryptocurrency or crypto asset trading has required that a crypto asset trading be subject to the AML ordinance of that jurisdiction. That means that if you are in a crypto exchange, you have to do AML and Know Your Customer (KYC) processes and also sanctions processes. When you do that, the anonymity stops there.”
In fact, against most people’s belief, Nolens, on the other hand, thought that cryptocurrency is significantly more traceable than most other payment methods because of the public addresses: “Most of the nascent tools for monitoring the crypto sector are in fact much more impressive than what I’ve seen in my past in the traditional sector. The only thing missing in cryptocurrency right now is that the identity is not attached to the address.”
Another opinion arose from Serey Chea, assistant governor of the National Bank of Cambodia, sharing the same point of view with Nolens: “I think we need to keep in mind that in fact, cash is the most anonymous instrument that exists today, right? So if cash goes digital, it’s actually easier to monitor than if cash is purely on paper or in the form of coin.”
She stated: “If you want to keep anonymity, then use cash.”
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