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ERROR: type should be string, got "https://doi.org/10.1057/s41261 022 00193 5\n\n**ORIGINAL ARTICLE**\n\n# Decoding the rise of Central Bank Digital Currency in China: designs, problems, and prospects\n\n**Pangyue Cheng[1]**\n\nAccepted: 27 January 2022 / Published online: 21 February 2022\n© The Author(s), under exclusive licence to Springer Nature Limited 2022\n\n**Abstract**\nDuring the Covid-19 pandemic, there has been a rapid shift in global transaction patterns from offline to online digital payment models, along with a growing interest in the development of Central Bank Digital Currencies (CBDCs) in various\ncountries. This article spotlights the unexamined issue of digital currency regulation by examining the practice and related\nregulatory rules of the pilot CBDC in China. Beginning with the global design choices of digital currencies, the article comparatively examines the technical design of China’s CBDC, known as e-CNY. It further triggers a rethinking of conventional\nregulations for the protection of digital currency information by investigating the gap between the actual operation and design\nof e-CNY, as well as the gap between pilot policies and legal provisions such as the Cybersecurity Law, the Data Security\nLaw, and the Personal Information Protection Law. This article argues that, on the one hand, the legislative balance between\nthe protection of personal information and the regulation of illicit financial activities involved in the “loosely coupled account\nlink” system of e-CNY should be reconsidered. On the other hand, the delineation of rights and responsibilities between\ndissemination institutions, payment service providers, and end-users needs to be further redefined and clarified.\n\n**Keywords Central Bank Digital Currency (CBDC) · Design choices · e-CNY pilots · Personal information protection**\n\n\n## Introduction\n\nOver the past two decades, innovative technologies have\nreshaped the monetary and payment systems at an unprecedented pace. The emergence of multiple digital currencies,\nincluding but not limited to mobile money (like M-Pesa)\nand cryptocurrencies based on distributed ledger technology (DLT)[1] and blockchain (such as Bitcoin, Ethereum,\nand Diem), continue to challenge traditional regulations\ngoverning currency at the domestic and international levels.[2] In addition, unregulated, crypto-digital currencies have\nprovoked an explosive growth of fraud, theft, and hacking problems, which pose a ubiquitous threat to traditional\nfinancial regulation and banking systems under the purview\n\n- Pangyue Cheng\npangyue_cheng@u.nus.edu\n\n1 Faculty of Law, National University of Singapore,\n469G Bukit Timah Road, Singapore\n\nVol: (1234567890)\n\n\nand control of national regulatory authorities, such as central banks.[3]\n\nCentral banks in many countries, such as the Bank of\nCanada,the Bank of England, and the People’s Bank of\nChina (PBOC) are, therefore, exploring the possibility and\nfeasibility of introducing a state-regulated, central bankbacked digital currency to address the aforementioned issues\narising from the anonymity of traditional digital currencies,\n\n1 According to the Bank for International Settlements (BIS) report,\nDLT refers to “the processes and related technologies that enable\n_nodes in a network (or arrangement) to securely propose, validate,_\n_and record state changes (or updates) to a synchronized ledger that_\n_is distributed across the network’s nodes”._ _See BIS [11] Distributed_\nLedger Technology in Payment, Clearing and Settlement: An Analytical Framework, Basel, Switzerland: Committee on Payments and\nMarket Infrastructures. CPMI Paper no. 157.\n\n2 Didenko et al. [21] After Libra, Digital Yuan and COVID-19: Central Bank digital currencies and the new world of money and payment\nsystems. Sydney, Australia: The European Corporate Governance\nInstitute. ECGI Working Paper Series 65/2020.\n\n3 Cunha et al. [17] From Bitcoin to Central Bank Digital Currencies: Making Sense of the Digital Money Revolution. Future Internet\n13(7): 165.\n\n\n-----\n\nof which China is at the forefront.[4] In April 2020, the PBOC\ndistributed 10 million e-CNY (or digital yuan) to Shenzhen\nresidents, thus making China one of the first countries to\nexperiment with Central Bank Digital Currency (CBDC)\nin reality.[5] Although the research and use of CBDC are still\nin their initial stages, the enormous financial and market\npotential of state-backed digital currency would lead to the\nrapid spread of CBDC around the world.\nSince CBDC is still in the process of research and development, there is no uniform and conclusive definition of this\ndigital currency, but it generally has three unique characteristics that distinguish it from physical money, e-money, and\nconventional cryptocurrencies. Firstly, the CBDC is issued by\na central bank, which represents a liability of the central bank\nrather than a private financial institution and is likely to have a\nsimilar value to the fiat currency issued by that central bank[6];\nsecondly, the CBDC is virtual money in digital form instead of\nphysical form; and thirdly, while it may use blockchain or DLT\nto facilitate transactions and settlements, the CBDC is centrally\ncontrolled and supervised by the central bank.\nBesides, the advantages and disadvantages of CBDC have\nbeen discussed in numerous banking analyst reports and academic studies around the world. In general, the advantages\nof CBDC include efficiency, convenience, safety, integrity,\naccessibility, settlement finality, and financial inclusion,[7]\nwhile the disadvantages typically include misuse of financial\ndata and user privacy.[8] However, with the ongoing concerns\nabout the protection of digital information associated with\nCBDC, there has little legal and policy analysis related to\n\n4 In 2014, the PBOC established a research group on legal digital\ncurrency, which focused on the issuance of digital currency, related\nkey technologies, and the context for currency issuance and circulation. Furthermore, the CBDC Research Institute was launched in\n2016 to complete the construction of the initial prototype system\nof Chinese CBDC (e-CNY), followed by joint research trials with\ncommercial institutions (such as Ant Group, China UnionPay, etc.)\nin 2017. _See PBOC [32] Working Group on E-CNY Research and_\nDevelopment of the PBOC. Beijing, China: Progress of Research\nand Development of E-CNY in China, Bordo, M. D., and Levin, A.\nT. (2017) Central bank digital currency and the future of monetary\npolicy. Massachusetts, US: National Bureau of Economic Research.\nNBER Working Paper 23,711.\n\n5 Jiaying and Karman [24] Background and Implications of China’s\nE-CNY, 11 January, [https://​ssrn.​com/​abstr​act=​37744​79, accessed 29](https://ssrn.com/abstract=3774479)\nAugust 2021.\n\n6 Boar and Wehrli [15] Ready, Steady, Go?—Results of the Third\nBIS Survey on Central Bank Digital Currency. Basel, Switzerland:\nBank for International Settlements. BIS Working Paper no. 1146.\n\n7 _See,_ _e.g., BIS [14–14 CBDCs: an Opportunity for the Monetary_\nSystem. Basel, Switzerland: Bank for International Settlements.\nBasel, Switzerland: Bank for International Settlements. BIS Annual\nEconomic Report.\n8 _Ibid, at 69, 72, and 75._\n\n\nthe information protection regulation of CBDC,[9] despite\nthe emergence of financial and technological research\non CBDC,[10] and despite the fact that China has already\nlaunched experiments of e-CNY in pilot cities and plans for\nfurther experiments at the Beijing 2022 Winter Olympics.[11]\nThus, it is significant to examine the new issues developed\nby the emergence of CBDC and to fill this literature gap in\nthe context of increased cashless payment during the Covid19 pandemic, particularly in China, where the CBDC was\nfirst put into use in reality. The analysis in this paper will\nhave broader implications for state-backed digital currencies\nin other jurisdictions. Moreover, when the development of\nCBDC poses potential or substantial risks to the financial\nmarket and personal privacy, it is necessary to address the\nchallenges from a legal perspective and to propose a viable\nset of solutions to the problems.\nBefore analyzing the practical and regulatory issues of\nCBDC, it is necessary to investigate the available design\nchoices, which are inextricably linked to the further regulation of CBDC. In addition, this article spotlights the unexamined issue of digital currency regulation by empirically\nexamining the practice and related regulatory rules of the\npilot in China. It triggers a rethinking of conventional regulations for the protection of digital currency information\nby investigating the gap between the actual operation and\ndesign of CBDCs, as well as the gap between pilot policies\nand legal provisions such as the Cybersecurity Law, Data\nSecurity Law (DSL), and the Personal Information Protection Law (PIPL). This paper argues that on the one hand,\nthe legislative balance between the protection of personal\ninformation and the regulation of illicit financial activities\ninvolved in the “loosely coupled account link” (song ou he)\nsystem of e-CNY should be reconsidered. On the other hand,\nthe delineation of rights and responsibilities between dissemination institutions, payment service providers, as well\nas end-users needs to be further redefined and clarified.\nThe structure of the paper is as follows. Section “A review\nof CBDC design choices in various countries” examines\nthe different models and the current development status of\nCBDCs in various countries, with an emphasis on reviewing CBDC design features and existing implementations.\nThe purpose is to compare China’s CBDC design choices\nwith those of other countries and provide the theoretical\n\n9 The exceptions are Jiang and Lucero, supra note 5; Didenko et al.,\n_supra note 2._\n\n10 _See, e.g., Morales-Resendiz et al. [29] Implementing a retail_\nCBDC: Lessons learned and key insights. Latin American Journal of\nCentral Banking 2(1): 2; Adrian and Mancini-Griffoli [1] The Rise\nof Digital Money. Annual Review of Financial Economics 13(1),Bech\nand Garratt [8] Central bank cryptocurrencies. BIS Quarterly Review,\nSeptember.\n\n11 Jiang and Lucero, supra note 5, at 4.\n\n\n-----\n\nbackground for further analysis. Section “Practical and regulatory issues of E-CNY pilot in China” investigates two main\nlegal problems accompanied by the e-CNY in China. The\nfirst problem pertains to the gap between theoretical design\nand empirical practice. The second problem relates to the\nlegal challenges associated with the broad range of financial services offered by the issuing bank (central bank) and\nother payment service providers (such as telecom operators\nand commercial banks) to CBDC users. Section “Proposed\nregulatory framework for CBDC in China” proposes four\nmain solutions to the emerging problems accompanied by\nthe rise of CBDCs: (a) proposing new classifications and\nrelated regulations for information processing with respect\nto digital currency user’s information; (b) enhancing the\ncompliance of current digital currency service providers;\n(c) delineating the rights and obligations of different levels\nof regulators; and (d) specifying the know-your-customer\nauthority and prerequisites to combat criminal activities.\nSection “Conclusion” concludes.\n\n## A review of CBDC design choices in various countries\n\nCentral bank interest in CBDCs has grown rapidly in the\nCovid-19 pandemic era.[12] According to a survey on CBDC\nconducted by the Bank for International Settlements (BIS) in\n2021, there have been more than 60 central banks exploring\nthe potential of CBDC since 2014, in which 86% are actively\nengaged in CBDC research, 60% are conducting technology\nexperiments or proofs of concepts, and 14% are moving forward with CBDC pilot projects.[13] During the experimental\nand pilot process, these central banks, however, faced several choices in designing the CBDC architecture.[14] The Different options bring correspondingly far-reaching positive\nimpacts and risks,[15] leading authorities cautiously choosing\n\n12 Saka et al. [34] Epidemic Exposure, Fintech Adoption, and the\nDigital Divide. CEPR Discussion Paper no. 16326.\n13 Boar and Wehrli supra note 6, at 6.\n\n14 Auer et al. [6, 7] Taking Stock: Ongoing Retail CBDC Projects.\nBIS Quarterly Review, 1 March, [https://​www.​bis.​org/​publ/​qtrpdf/​r_​](https://www.bis.org/publ/qtrpdf/r_qt2003z.htm)\n[qt200​3z.​htm, accessed 31 December 2021.](https://www.bis.org/publ/qtrpdf/r_qt2003z.htm)\n\n15 _See, for example, Bordo and Levin [16] Central Bank Digital_\nCurrency and the Future of Monetary Policy. Massachusetts, US:\nNational Bureau of Economic Research. NBER Working Paper no.\n237611, and Bindseil [9] Central Bank Digital Currency: Financial\nSystem Implications and Control. International Journal of Political\nEconomy 48(4): 303–335 (analysis of CBDC improves the transaction efficiency); see Allen et al. [3] Design Choices for Central Bank\nDigital Currency: Policy and Technical Considerations. Massachusetts, US: National Bureau of Economic Research. NBER Working\nPaper no. 27634, and Engwet and Fung [22] Central Bank Digital\nCurrency: Motivations and Implications. Ottawa, Canada: Bank of\nCanada. Staff Discussion Paper No.2017–2016 (analysis of CBDC\nto promote financial inclusion); see Bech and Garratt, supra note 10\n\n\nthe future direction of CBDC development through numerous pilot testing.[16] Before investigating issues specifically\nrelated to the e-CNY, it would be helpful to get a view of the\nentire structure of CBDCs. This chapter thus examines the\nfundamental design options for central banks—what types\nof users will CBDCs serve? What operational roles will central banks and financial intermediaries play? What range of\ntransactions will be of concern? And what prototypes and\naccess technologies will CBDCs be based on?—by reviewing the latest research and project experiments of CBDCs\nin various countries.\n\n### Target users, operator roles, and scope of use\n\nOne of the important design choices facing CBDC issuers is\nthe customers that they are targeting. The rights and responsibilities of central banks and other financial service providers may vary depending on the users. Thus, before analyzing\nthe role of financial institutions, it is necessary to clarify the\ntypes of CBDC that are currently being studied in various\ncountries. At present, two forms of CBDCs are available in\ncentral banks, retail CBDCs and wholesale CBDCs. The\nformer is used in a larger financial context where both individual and financial institutions can use CBDC to support\ntheir financial transactions, while the latter is only concerned\nwith specific financial operations between financial institutions and entities.[17]\n\nBased on observations, retail CBDC projects are favoured\nin emerging markets and developing economies, such as\nBahamas, Cambodia, and Mainland China, where financial\ninclusion and enhanced payment abilities seem to be the key\ndrivers.[18] For instance, Sand Dollar (or called B$) was introduced to enhance payment services within the Bahamas’\n\nFootnote 15 (continued)\n\n(analysis of CBDC to minimize criminal usage); also see BIS (2021a,\nb, c Central Bank Digital Currencies: Financial Stability Implication.\nBasel, Switzerland: Bank for International Settlements. BIS Report\nNo. 4 (analysis of the additional financial stability risks posed by\nCBDC).\n\n16 _See, for example, Mancini-Griffoli et al. [28] Casting light on_\ncentral bank digital currency. Washington DC, US: International\nMonetary Fund. IMF Staff Discussion Note 8, Auer et al. [6, 7]\nRise of the central bank digital currencies: drivers, approaches and\ntechnologies. Munich, Germany: CESifo Working Paper no. 8655;\nAgur et al. [2] Designing central bank digital currencies. Journal of\nMonetary Economics, available online 8 May 2021, 10.1016/j.jmoneco.2021.05.002.\n\n17 Boar and Wehrli, supra note 6, at 4.\n\n18 Boar and Wehrli, _supra note 6, at 7; BIS [14–14] Central bank_\ndigital currencies for cross-border payments: report to the G20, July,\n[https://​www.​bis.​org/​publ/​othp38.​pdf, accessed 2 January 2022; Kiff](https://www.bis.org/publ/othp38.pdf)\net al. [27] A survey of research on retail central bank digital currency.\nWashington DC, US: International Monetary Fund. IMF Working\nPaper WP/20/104.\n\n\n-----\n\nscattered archipelago.[19] E-CNY was also explicitly identified\nby the PBOC as a retail CBDC to better meet domestic retail\npayment demands.[20] Further, there are two existing models for retail CBDCs architectures—direct and indirect—in\nwhich the central bank and financial intermediaries play different operational roles. The design of a direct retail CBDC\nmay convert the traditional two-tier monetary system to onetier in which the central bank keeps all records of CBDC\ntransaction and directly handle payment services for the\ngeneral public.[21] Research on direct retail CBDC research\nsuch as the E-krona project in Denmark,[22] Norway[23] and\nSweden,[24] Sand Dollar pilot in the Bahamas,[25] and Rafkróna\nin the central bank of Iceland,[26] examines the potential for\nCBDCs to diminish credit risks and reduce reliance on the\nother commercial agents. Direct retail CBDC is simple as\nit eliminates reliance on financial intermediaries; but on the\nother hand, a direct infrastructure implies that the former\nresponsibilities of intermediaries, such as customer due\ndiligence, account management, and payment services, are\ntransferred from the private sector to the central bank, which\nmay detract from the stability and efficiency of the payment\nsystem.[27] Thus, the indirect retail CBDC model seems less\ndisruptive to the current payment system, as it still has the\ntwo-tier financial system, with the central bank responsible\nonly for the wholesale accounts of financial intermediaries,\nand the latter continuing to be accountable to the public.\nA typical example is China’s Digital Currency/ Electronic\nPayments (DC/EP) program, which explores a two-tier operating system cantered on the PBOC. The project requires\nauthorized financial intermediaries to exchange and circulate\n\n19 _Ibid._\n\n20 PBOC Working Group, supra note 4, at 4.\n\n21 Auer and Böhme [5] Central Bank Digital Currency: the Quest for\nMinimally Invasive Technology. Basel, Switzerland: Bank for International Settlements. BIS Working Paper no. 948.\n\n22 Gürtler et al. [23] Central Bank Digital Currency in Denmark?\nCopenhagen, Denmark: Denmarks National bank. Analysis no. 28.\n\n23 Norges Bank Working Group [30] Central Bank Digital Currencies Second Report of Working Group. Oslo, Norway: Norges Bank.\nNorges Bank Memo no. 2.\n\n24 Julin [25] The Riksbank’s E-krona Project. Stockholm, Sweden:\nSveriges Riksbank. Report 1.\n\n25 Central Bank of the Bahamas (2019) Project Sand Dollar: A Baha[mas Payments System Modernisation Initiative, 24 December, https://​](https://cdn.centralbankbahamas.com/download/022598600.pdf)\n[cdn.​centr​alban​kbaha​mas.​com/​downl​oad/​02259​8600.​pdf, accessed 9](https://cdn.centralbankbahamas.com/download/022598600.pdf)\nSeptember 2021.\n\n26 Central Bank of Iceland (2018) Rafkróna? Central Bank Digital\n[Currency Interim Report, September, https://​www.​cb.​is/​libra​ry/​Skraa​](https://www.cb.is/library/Skraarsafn---EN/Reports/Special_Publication_12.pdf)\n[rsafn---​EN/​Repor​ts/​Speci​al_​Publi​cation_​12.​pdf, accessed 9 Septem-](https://www.cb.is/library/Skraarsafn---EN/Reports/Special_Publication_12.pdf)\nber 2021.\n\n27 Auer and Böhme, supra note 21, 88–90.\n\n\ne-CNY to the public, while the central bank is responsible\nfor the issue and centralized management.[28]\n\nIn contrast, research and experiments on wholesale\nCBDCs or interbank CBDCs have mostly been conducted\nin developed economies with relatively well-established\ninterbank systems and financial trading markets, such as\nHong Kong SAR, Singapore, Canada, the United Kingdom, France, and Japan,[29] where payment-related motivations such as efficiency, safety, and robustness are of greater\nconcern than financial inclusion.[30] In addition, most of the\nwholesale projects are conducted on a cross-border basis to\ntest the interconnection potential between different CBDC\nprojects, such as HKSAR-Thailand, Singapore-Canada,\nEurope-Japan, etc.[31] The wholesale CBDC project is less\nlikely to influence the operational role of central banks and\nfinancial institutions because banks already have direct\naccess to the central banks’ electronic money.[32] But consider that the wholesale project aims to promote security\nand efficiency in the institutional trading process, it may\nalso provide CBDC accounts and payment services to other\ninstitutions such as securities participants and nonfinancial\ncompanies. For example, according to the final phase report\nof the Ubin Project launched by the Monetary Authority of\nSingapore (MAS), the Ubin V project has collaborated with\n16 selected firms in multiple scenarios, including capital\nmarkets, trade and supply chain finance, insurance, and other\ninstitutional payment services such as media and advertising\ntransactions and salary payments.[33] These selected institutions include not only financial firms, such as 1exchanges,\niSTOX, and Digital Ventures; but also non-financial firms\nlike Aqilliz, Octomate, and Adecco.[34]\n\nIn addition, in order to simplify cross-border payments,\nreduce transaction risks and costs, and improve payment\nefficiency, the cross-border wholesale CBDC programs\ncurrently examine three models to facilitate transactions\nbetween central banks. The first model attempts to eliminate the conventional trusted third party in interbank settlements and conduct direct payment versus payment (PvP)\n\n28 PBOC Working Group, supra note 4, at 4.\n\n29 BIS, supra note 18.\n\n30 Boar and Wehrli, supra note 6, at 8.\n\n31 BIS, supra note 18.\n\n32 Deloitte [20] Are Central Bank Digital Currencies (CBDCs) the\nmoney of tomorrow? [https://​www2.​deloi​tte.​com/​conte​nt/​dam/​Deloi​](https://www2.deloitte.com/content/dam/Deloitte/lu/Documents/financial-services/Banking/lu-are-central-bank-digital-currencies.pdf)\n[tte/​lu/​Docum​ents/​finan​cial-​servi​ces/​Banki​ng/​lu-​are-​centr​al-​bank-​digit​](https://www2.deloitte.com/content/dam/Deloitte/lu/Documents/financial-services/Banking/lu-are-central-bank-digital-currencies.pdf)\n[al-​curre​ncies.​pdf, accessed 9 September 2021.](https://www2.deloitte.com/content/dam/Deloitte/lu/Documents/financial-services/Banking/lu-are-central-bank-digital-currencies.pdf)\n\n33 Temasek and Monetary Authority of Singapore (2020) Project\nUbin Phase 5—Enabling Broad Ecosystem Opportunities, 13 July,\n[https://​www.​mas.​gov.​sg/-/​media/​MAS/​Proje​ctUbin/​Proje​ct-​Ubin-​](https://www.mas.gov.sg/-/media/MAS/ProjectUbin/Project-Ubin-Phase-5-Enabling-Broad-Ecosystem-Opportunities.pdf)\n[Phase-5-​Enabl​ing-​Broad-​Ecosy​stem-​Oppor​tunit​ies.​pdf, accessed 9](https://www.mas.gov.sg/-/media/MAS/ProjectUbin/Project-Ubin-Phase-5-Enabling-Broad-Ecosystem-Opportunities.pdf)\nSeptember 2021.\n\n34 _Ibid._\n\n\n-----\n\nservices for cross-border transactions. For instance, in the\nJasper-Ubin project of the Bank of Canada and MAS, two\nDLT-based CBDCs use Hashed Time-Locked Contracts\n(HTLC) technology to connect their payment networks and\nexplore the potential of DLT interconnectivity mechanisms\nfor CBDCs.[35] The second model retains the third institution between two separate CBDCs systems, but it contemplates a joint institution managed by specific central banks to\nserve cross-border payments. One example is the InthanonLionRock project developed by the Bank of Thailand (BOT)\nand Hong Kong Monetary Authority (HKMA), which\nuses a BOT-HKMA managed “corridor network” to initiate and settle cross-border payments between two separate\nCBDCs.[36] The third model extends CBDC cross-border payments from two banks to multiple banks through a common\nnetwork. The model is being explored by MAS and Banque\nde France, who is testing the possibility of a shared corridor\nnetwork of multiple CBDCs (m-CBDCs).[37] Through setting\nup smart contracts to automatically manage exchange rates\nbetween different CBDCs in real-time market transactions,\nthe experimental m-CBDCs network integrates “automated\nliquidity pool and market-making services” to explore the\npotential of the cross-border CBDC payments in multiple\ncentral banks.[38]\n\n### Infrastructure and access technology design\n\nThere are two kinds of CBDC infrastructures developed in\ncentral banks, the first one is based on DLT, and the second\none is based on central control. As mentioned above, the\nDLT-based CBDCs draw on the concept of decentralized\ncryptocurrencies but compensate for the illegitimacy issues\nassociated with complete anonymity by allowing validation\nby authorized verifiers.[39] Most of the planned CBDC prototypes are closely tied to multiple technologies of DLT,\n\n35 MAS (2019) Central Banks of Canada and Singapore Conduct\nSuccessful Experiment for Cross-border Payments Using Distributed\nLedger Technology, 2 May, [https://​www.​mas.​gov.​sg/​news/​media-​](https://www.mas.gov.sg/news/media-releases/2019/central-banks-of-canada-and-singapore-conduct-successful-experiment-for-cross-border-payments)\n[relea​ses/​2019/​centr​al-​banks-​of-​canada-​and-​singa​pore-​condu​ct-​succe​](https://www.mas.gov.sg/news/media-releases/2019/central-banks-of-canada-and-singapore-conduct-successful-experiment-for-cross-border-payments)\n[ssful-​exper​iment-​for-​cross-​border-​payme​nts, accessed 10 September](https://www.mas.gov.sg/news/media-releases/2019/central-banks-of-canada-and-singapore-conduct-successful-experiment-for-cross-border-payments)\n2021.\n\n36 Bank of Thailand and Hong Kong Monetary Authority (2020)\nInthanon-LionRock, Leveraging Distributed Ledger Technology to\nIncrease Efficiency in Cross-Border Payments, [https://​www.​hkma.​](https://www.hkma.gov.hk/media/eng/doc/key-functions/financial-infrastructure/Report_on_Project_Inthanon-LionRock.pdf)\n[gov.​hk/​media/​eng/​doc/​key-​funct​ions/​finan​cial-​infra​struc​ture/​Report_​](https://www.hkma.gov.hk/media/eng/doc/key-functions/financial-infrastructure/Report_on_Project_Inthanon-LionRock.pdf)\n[on_​Proje​ct_​Intha​non-​LionR​ock.​pdf, accessed 10 September 2021.](https://www.hkma.gov.hk/media/eng/doc/key-functions/financial-infrastructure/Report_on_Project_Inthanon-LionRock.pdf)\n\n37 MAS (2021) Monetary Authority of Singapore and Banque de\n[France Break New Ground in CBDC Experimentation, 8 July, https://​](https://www.mas.gov.sg/news/media-releases/2021/monetary-authority-of-singapore-and-banque-de-france-break-new-ground-in-cbdc-experimentation)\n[www.​mas.​gov.​sg/​news/​media-​relea​ses/​2021/​monet​ary-​autho​rity-​of-​](https://www.mas.gov.sg/news/media-releases/2021/monetary-authority-of-singapore-and-banque-de-france-break-new-ground-in-cbdc-experimentation)\n[singa​pore-​and-​banque-​de-​france-​break-​new-​ground-​in-​cbdc-​exper​](https://www.mas.gov.sg/news/media-releases/2021/monetary-authority-of-singapore-and-banque-de-france-break-new-ground-in-cbdc-experimentation)\n[iment​ation, accessed 10 September 2021.](https://www.mas.gov.sg/news/media-releases/2021/monetary-authority-of-singapore-and-banque-de-france-break-new-ground-in-cbdc-experimentation)\n\n38 _Ibid._\n\n39 BIS, supra note 6, at 79.\n\n\nfor example, central banks in jurisdictions such as Brazil,\nCambodia, Ukraine, Eastern Caribbean, and China have\nadopted DLT models.[40] The DLT-related design currencies\nare completely different from electronic currencies based on\na trusted central payment system.[41] Compared with a centralized intermediary payment system, the DLT design of\nCBDCs may facilitate business transactions and financial\nservices through its accessibility, resilience, and transparency.[42] Nevertheless, CBDC with DLT design is not without risk. Evolving DLTs may pose operational and security\nrisks as well as potential disruptions to current monetary\nregulation. For example, multiple nodes of a DLT may create additional entry points for malicious intruders, cryptographic tools could have security breaches, and the current\nregulations may not be well established to confirm the rights\nand obligations of related parties.[43] In addition, the relevant\nnon-central bank parties in a DLT-based CBDC may be entitled to participate in various scenarios of CBDC transactions\nwithout having sufficient security capabilities as a country’s\ncentral bank, leading to additional financial risks.[44] In most\ninstances, these risks and disruptions are resilient and could\nbe addressed through continuous improvements in the design\nof DLT-based CBDC frameworks,[45] but legal uncertainty,\nor even the lack of regulations to control risks and protect\nusers, may undermine public confidence in digital currencies\nand further hinder their development.[46] Thus, considering\nthat the decentralized nature of the DLT-based CBDC may\ndiminish the management of the central bank and challenge\nthe existing monetary regulation framework, there are a lot\nof countries, especially the top economies, that attempt to\nregulate or consider regulating digital currencies in the context of the central banking system.\nIn addition to the DLT-based CBDCs, there also exist\nCBDC infrastructures that are based on conventional centrally controlled mechanisms. With the conventional centralized databases, each update would be recorded on multiple\nphysical nodes that are uniformly controlled by a top-level\n\n40 Auer and Böhme, supra note 21, at 98.\n\n41 BIS [10] Digital Currencies, Basel, Switzerland: Committee on\nPayments and Market Infrastructures. BIS Working Paper no. 1146.\n\n42 Kiff et al., supra note 18, at 29.\n\n43 BIS, supra note 41, at 16.\n\n44 World Economic Forum [36] CBDC Technology Considerations\nWhite Paper. Digital Currency Governance Consortium White Paper\n[Series, 19 November, https://​www3.​wefor​um.​org/​docs/​WEF_​CBDC_​](https://www3.weforum.org/docs/WEF_CBDC_Technology_Considerations_2021.pdf)\n[Techn​ology_​Consi​derat​ions_​2021.​pdf, accessed 2 January 2021.](https://www3.weforum.org/docs/WEF_CBDC_Technology_Considerations_2021.pdf)\n\n45 _See, for example, selecting permissioned and trusted platforms to_\nreduce security concerns. Kiff et al., supra note 18, at 29.\n\n46 _See Kapsis [26] Should we trade market stability for more finan-_\ncial inclusion? The case of crypto-assets regulation in EU. In A. Lui\nand N. Ryder (eds.) FinTech, Artificial Intelligence and the Law. London: Routledge, pp. 85–104.\n\n\n-----\n\nnode.[47] Such a method of recording data is faster than the\nDLT mechanism, where updates to the ledger need to be\nbroadcast and wait for replies before they can be finalized\nin the ledger.[48] For example, the central bank of Ecuador (Banco Central del Ecuador) developed the Dinero\nElectrónico project between 2014 and 2018, in which the\ndesigned mobile payment system was maintained by the\ncentral bank.[49]\n\nAnother technology related to the design of CBDC is the\nuser access method. So far, central banks have designed two\ndifferent ways for accessing CBDC (either retail or wholesale): account-based and token-based.[50] The account-based\nCBDC is similar to a bank account where user transaction data are recorded in a database tied to their identity.[51]\nThus, customers are required to prove their identity before\nproceeding with a CBDC transaction. The account-based\ndesign can be found in the Bahamas’ Sand Dollar pilot,\nwhere the Central Bank of Bahamas examines the potential\nof the account-based Sand Dollar to defend against money\nlaundering and other illicit activities.[52] Another design solution of CBDC is based on digital tokens. It makes the user\nanonymous through the cryptographic scheme without the\nrequirement of identification.[53] The token-based design\nwould ensure universal access as it has cash-like attributes,\nand anybody can get access under a pseudonym.[54] Although\ntoken-based CBDC protects user privacy by default, central\nbanks and other authorized institutions still have the right to\ntrack or share transaction data with participants on a needto-know basis. In terms of the degree of anonymity, different CBDC projects have different regulations. For example,\nin China’s DC/EP project, the identity of e-CNY users is\n“controllable anonymity”, as high-value transactions will be\ntraced by the central bank. It is also noted that to safeguard\nthe privacy of users, the PBOC will not provide information\nto third parties (including the government) unless required\nby law and regulation.[55]\n\nIn a nutshell, central banks around the world are exploring at least four levels of CBDC design. Firstly, according to the targeted users, CBDCs can be divided into the\nretail model and the wholesale model. In the retail design\n\n47 Auer and Böhme, supra note 21, at 92.\n\n48 _Ibid._\n\n49 Arauz and Garratt [4] Dinero Electrónico: The Rise and Fall of\nEcuador's Central Bank Digital Currency. Latin American Journal of\nCentral Banking 2(2), 100,030.\n\n50 Auer and Böhme, supra note 21, at 86.\n\n51 _Ibid, at 93._\n\n52 Central Bank of the Bahamas, supra note 25, at 4.\n\n53 Auer and Böhme, supra note 21, at 88.\n\n54 _Ibid._\n\n55 PBOC Working Group, supra note 4, at 7.\n\n\nmechanism, financial transaction systems can be integrated\ninto a one-tier system under the direct control of the central\nbank, while some central bank programs continue to use the\ntwo-tier system. Secondly, as for the scope of application,\nCBDC programs of central banks can be generally divided\ninto the domestic type and cross-border type. Wholesale\nCBDCs are more focused on the latter, as institutions have a\ngreater need to improve the quality of cross-border transactions. In terms of cross-border wholesale CBDC, there are\nthree kinds of models to choose from: no third-party, jointly\nmanaged corridor network, and shared m-CBDCs network.\nThirdly, given the infrastructure technology of CBDCs, most\ncentral banks attempt to unlock the potential of DLT in the\ndesign of CBDCs to improve accessibility and transparency,\nwhile a few projects use traditional centrally controlled\ninfrastructure. Finally, regarding user access mechanisms,\ncustomers of CBDCs may have two ways to get access. The\nfirst is similar to current bank accounts, where CBDC access\nis tied to the users’ identity; and the second is cash-like,\nwhich provides users with relative anonymity to protect their\nprivacy. Notably, some of the options are not exclusive, and\nnumerous central banks have attempted to explore hybrid\nmodels that combine the advantages of different options.\n\n## Practical and regulatory issues of E‑CNY pilot in China\n\nIt appears that China is now at a crucial crossroads in\nCBDC design. The PBOC’s latest working paper in July\n2021 states that it is attempting to explore the potential of\ne-CNY in terms of (1) retail model with a two-tier system[56];\n(2) domestic and cross-border types[57]; (3) a combination\nof DLT technology and centralized management[58]; and (4)\ncash-like controllable anonymity.[59] For the development of\nretail CBDCs, the BIS summarized four characteristics necessary for the retail model to be trusted and widely used: stability, accessibility, convenience, and security.[60] Therefore,\nin addition to theoretically analyzing the different design\nmodels of CBDCs in various countries, it is necessary to further investigate the actual practices and related regulations\nof e-CNY experiments and to conduct an empirical study\nincorporating the four necessary features of CBDCs. This\nchapter interrogates the pilot experience of China’s e-CNY,\nanalyses the Cybersecurity Law, DSL, PIPL, as well as the\n\n56 _Ibid, at 3–4._\n\n57 _Ibid, at 4–5._\n\n58 _Ibid, at 10–11._\n\n59 _Ibid, at 5, 7, 9._\n\n60 Auer, R. and Böhme, R. (2020) The Technology of Retail Central\nBank Digital Currency. BIS Quarterly Review, March.\n\n\n-----\n\nspecific Personal Information Protection Policy in e-CNY\npractice. It identifies gaps between practice and design concepts and highlights current regulatory issues in China’s DC/\nEP project.\n\n### E‑CNY Pilot in China\n\nIn DC/EP program, e-CNY is a legal tender, a liability of the\ncentral bank to the public, and a mainly substitute for cash in\ncirculation (M0).[61] Therefore, the e-CNY is certainly secure\nas it is backed by the sovereign credit of China.\nAs for the convenience of e-CNY, the DC/EP program\nhas established pilots in ten cities[62] and scenarios in the\n2022 Beijing Winter Olympics to promote the domestic use\nof digital currency in China.[63] As of June 2020, the Chinese\ndigital currency experiment has covered more than 1.32\nmillion scenarios where merchants accept payments from\ncustomers using e-CNY, as well as 20.87 million individual\nusers and 3.51 million corporate users who can use e-CNY\npayment services in their daily transactions, such as utility\nbill payment, shopping and catering, and public services.[64]\nThus, the convenience of using digital payment services was\nevident in the DC/EP pilot. It was also observed that customers could make payments in real-time via QR codes or\nNear-Field Communication (NFC).[65] The current experience\nof paying with e-CNY is similar to that of mobile payments,\nbut users can make offline transactions with the NFC technology, thereby increasing the convenience and stability of\ntransactions.[66]\n\nIn terms of accessibility, it should be noted that since the\ndigital currency is still in the process of experimentation,\ncash-like universal accessibility has not yet been achieved,\nand only invited corporates and residents in pilot cities can\nuse e-CNY services. Individuals who would like to participate in the experiment will need to apply for eligibility by\nproviding their name or pseudonym and phone number to\n\n61 PBOC Working Group, supra note 4, at 2–3.\n\n62 Up to now, pilot cities for e- CNY include Shenzhen, Suzhou,\nXiong’an, Chengdu, Shanghai, Hainan, Changsha, Xi’an, Qingdao,\nand Dalian. See, ibid, at 13.\n\n63 _Ibid._\n\n64 _Ibid._\n\n65 The Paper (2020) Shuzi Renminbi Quanliucheng Tiyan, Yiwen\nDaini Kankan Meixiangdao De Xijie (数字人民币全流程体验, 一文\n带你看看没想到的细节) [Full Experience of E-CNY, an Article to\n[Show the Unexpected Details], 15 October, https://​www.​thepa​per.​cn/​](https://www.thepaper.cn/newsDetail_forward_9571162)\n[newsD​etail_​forwa​rd_​95711​62, accessed 10 September 2021.](https://www.thepaper.cn/newsDetail_forward_9571162)\n\n66 Wu, Y. et al., Shuzi Renminbi Shidian “Kuorong”, “Hua” Yang\nFanxin (数字人民币 “扩容”,“花”样翻新) [E-CNY Pilot Expansion\nwith Innovative Consuming Method], 21 April, [http://​www.​xinhu​](http://www.xinhuanet.com/fortune/2021-04/21/c_1127358019.htm)\n[anet.​com/​fortu​ne/​2021-​04/​21/c_​11273​58019.​htm, accessed 10 Sep-](http://www.xinhuanet.com/fortune/2021-04/21/c_1127358019.htm)\ntember 2021.\n\n\nthe PBOC Digital Currency Institute or an authorized commercial bank.\nOf the four necessary features of retail CBDCs, the most\nsignificant issue that should be concerned is privacy safeguards. According to the latest survey conducted by the European Central Bank in 2021, people are most concerned about\nthe digital Euro in terms of user privacy.[67] Thus, it is important\nfor policymakers to technically balance the protection of individual privacy with the monitoring of illicit transactions. As\nmentioned above, customers who want to use the e-CNY payment service should apply with their phone number, which is\nmanaged by the telecom companies. Changchun Mu, director\nof the Digital Currency Institute, said that under current regulations, telecom operators cannot divulge subscriber information to third parties such as the PBOC, thus the phone numberbased accounts are completely anonymous to the PBOC and\nother payment service providers.[68] In practice, according to the\ncurrent rules regarding telephone subscriber information, telecom service operators are required to register the true identity\nof subscribers,[69] which is supervised by the Ministry of Industry and Information Technology and local communications\nadministrations in accordance with the law.[70] In order words,\nunder the existing law, subscriber information may not be disclosed by telecom operators to the PBOC, but operators may\nprovide user information to central and local communications\nregulatory authorities. Besides, it is worth noting that telecom\noperators and regulators are not allowed to provide information to others after obtaining subscriber information; and when\nthe information is obtained in the performance of functions to\nprotect cybersecurity, the obtained information could only be\nused for the purpose of maintaining cybersecurity.[71]\n\n67 Ikeda (2021) European Central Bank CBDC Survey Finds Privacy\nIs the Number One Concern for Digital Euro, 5 May, [https://​www.​](https://www.cpomagazine.com/data-privacy/european-central-bank-cbdc-survey-finds-privacy-is-the-number-one-concern-for-digital-euro/)\n[cpoma​gazine.​com/​data-​priva​cy/​europ​ean-​centr​al-​bank-​cbdc-​survey-​](https://www.cpomagazine.com/data-privacy/european-central-bank-cbdc-survey-finds-privacy-is-the-number-one-concern-for-digital-euro/)\n[finds-​priva​cy-​is-​the-​number-​one-​conce​rn-​for-​digit​al-​euro/,](https://www.cpomagazine.com/data-privacy/european-central-bank-cbdc-survey-finds-privacy-is-the-number-one-concern-for-digital-euro/) accessed\n10 September 2021.\n\n68 Du (2021) Yanghang Hui Zhangwo Yonghu Xinxi, Qinfan Yinsi\nMa? Mu Changchun Xiangjie Shuzi Renminbi “Kekong Niming” (\n央行会掌握用户信息、侵犯隐私吗?穆长春详解数字人民币 “\n可控匿名”) [Will Central Banks Have User Information and Violate Privacy? Changchun Mu Explains \"Controllable Anonymity\" of\nE-CNY], 20 March, [https://​www.​yicai.​com/​news/​10099​3230.​html,](https://www.yicai.com/news/100993230.html)\naccessed 10 September 2021.\n\n69 Provisions on the Registration of True Identity Information of\nTelephone Subscribers (promulgated by the Instrumentalities of\nthe State Council, All Ministries, Ministry of Industry and Information Technology, 16 July 2013, effective 1 September 2013),\nCLI.4.207022(EN) (Lawinfochina), article 3.\n\n70 _Ibid, article 4._\n\n71 Cybersecurity Law of the People’s Republic of China (promulgated by the Standing Committee National People’s Congress, 11 July\n2016, effective 1 June 2017), CLI.1.283838(EN) (Lawinfochina) [18],\narticle 30.\n\n\n-----\n\nFurthermore, according to the Draft for Public Solicitation of Comments of PRC People’s Bank of China Law\n(PBOCL) released in 2020, the central bank would be\nresponsible for establishing a national financial database,\ncollecting and managing national financial industry statistical data and relevant information, and it shall establish a\nsupervisory and management information sharing mechanism with the Financial Stability Development Committee\nof the State Council.[72] In other words, both the central bank\nand the Financial Stability Development Committee might\nhave the ability to access digital currencies user information in the future. Thus, although there are no established\nspecific regulations in China regarding the data processing\nof CBDC user information, potential conflicts between the\ndesign assumptions of the DC/PE project—cash-like controllable anonymity—and existing or planned regulations\nhave gradually emerged.\nIt is understandable that the PBOC would need to process\nuser’s information in certain circumstances—after all, one\nof the significant functions of the CBDC is to suppress illegal financial activities, such as tele-fraud, online gambling,\nmoney laundering, tax evasion, and terrorism financing.[73]\nHowever, with the rise of CBDC in China, the boundaries\nof the protection and appropriate use of customer information for digital currencies need to be clarified. As mentioned\nabove, China’s DC/EP pilot adopts a controllable anonymity\ntheory that classifies access to users’ personal information\ninto different levels based on the value of user transactions,\ni.e., the small value is anonymous, and the large value is\ntraceable.[74] The PBOC describes this controllable anonymous connection between user’s commercial bank accounts\nand their e-CNY wallets as a “loosely coupled account link”.\nIn practice, it is observed that there are currently four types\nof digital currency wallets available to the general public\n(see the following Chart), but except for the money in “red\npackets” freely distributed by the PBOC, the vast majority of users need to first bind their bank account and top\nup money from the bank account to the digital wallet, i.e.,\nupgrade the digital wallet to Level II, which requires not\nonly registering an account with their phone number but also\nrequires the user to authenticate with their real name and\nbind their bank account. In addition, in the current digital\ncurrency experimental system, e-CNY users cannot connect\ntheir bank accounts to their e-CNY accounts without identity\n\n72 Notice by the People's Bank of China of the Request for Public\nComments on the Draft to Revise the Law of the People's Republic of\nChina on the People's Bank of China (Revision Draft for Comments)\n(promulgated by the People’s Bank of China, 23 October 2020, deadline for comments 23 November 2020), CLI.4.15106(EN) (Lawinfochina) [31], article 41, 51, 52.\n\n73 PBOC Working Group, supra note 4, at 7.\n\n74 _Ibid._\n\n\nauthentication. Therefore, in most cases, PBOC can obtain\nuser information when the user starts using e-CNY.[75]\n\nDifferent Levels of e-CNY Wallet in the Pilot\n\n\nAnnual\ntransaction\ncap\n\n\nDaily\ntransaction cap\n\n\nSingle\ntransaction cap\n\n\nWallet RequireType ments for\nusers\n\nLevel IV Register\nwith\nphone\nnumber\n\nLevel III Authentication\nwith\nChinese\nResident\nIdentity\nCard\n\nLevel II Debit\ncard\nbinding\n\nLevel I Bank\ncounter\ncertification\n\n\nWallet\nbalance\ncap\n(RMB)\n\n\n10,000 2000 5000 50,000\n\n20,000 5000 10,000 No limit\n\n500,000 50,000 100,000 No limit\n\nNo limit No limit No limit No limit\n\n\nIn addition to the telecom service operators and the\nPBOC, other related payment service providers were found\nto have potential access to user personal information during\nthe e-CNY pilot. As mentioned above, China adopts a twotier operating system for payment services: the central bank\nallocates quotas to designated commercial banks, which provide digital currency exchange and circulation services.[76]\nThere are no uniform criteria for selecting designated banks\nand no disclosure of the amount of digital currency that\ncommercial banks can have. What is certain, however, is\nthat these designated commercial banking industries have\nthe opportunity to access users’ e-CNY account information.\nIn the beta version of the e-CNY wallet mobile application, there are currently seven commercial banks authorized to provide digital currency services, including six\nstate-owned commercial banks[77] and one private-owned\ncommercial bank (Zhejiang E-Commerce Bank), the latter\nof which has an inextricable relationship with Alipay—one\n\n75 The data are based on China’s central bank digital yuan wallet\napplication ‘e-CNY’ developed by the digital currency research institute of the PBOC.\n\n76 PBOC Working Group, supra note 4, at 8.\n\n77 These six state-owned commercial banks are regarded as China’s\nsix largest banks, including China Construction Bank, Industrial and\nCommercial Bank of China, Agricultural Bank of China, Postal Savings Bank of China, Bank of Communication, and Bank of China.\n\n\n-----\n\nof the most successful mobile payment platforms in China.\nBefore customers accept the digital currency services\nof commercial banks, they need to read and agree to the\ne-CNY Wallet User Service Agreement and the commercial bank’s E-CNY Personal Information Protection Policy,\nrespectively. According to these two legal documents, the\ndesignated commercial bank can collect digital currency\nuser’s personal information[78] and account information.[79] If\nthe customer refuses to provide it, the only mobile application available for e-CNY transactions in the pilot will not\nhave access to the bank account.[80] Furthermore, the protection policy specifies that commercial banks may collect,\nuse, share, transfer, or even publicly disclose user’s personal\ninformation.[81]\n\nIn summary, although the director of the Digital Currency\nInstitute in China said that e-CNY wallets opened with telephone numbers are “completely anonymous” to the PBOC\nand the other operators,[82] the current experiences show that\ntelecom operators, telecom supervisory authorities, the\nPBOC, and delegated commercial banks all have the opportunity to access user’s personal information. Admittedly,\nas e-CNY is still in its trial stage, the PBOC has not yet\ndisclosed the technology and methods for protecting users’\nprivacy, and it is unknown how the relevant service providers will collect and store the data and how they will prevent\nmisuse or abuse of digital information. Furthermore, only\ndelineated corporates and selected individuals in pilots can\ndownload the e-CNY application for registration and transactions, and regulations regarding the personal information\nof digital currency users have not yet been established, further investigation and research will be required in the future.\n\n### Current regulatory issues in digital currency personal information\n\nIn addition to technical protection of privacy, legal regulation of the personal information related to digital currency\nis also needed. In fact, the absence of specific regulations\nfor digital currency user information does not simply mean\nthat there are no existing legal provisions to protect customer information. This part will then analyze the impact\n\n78 Including but not limited to the user's name, gender, nationality,\nplace of birth, date of birth, type of ID, ID number and expiration\ndate, personal biometric information, communication and contact\nmethod, place of residence or workplace address, family information,\noccupation information, account information, and property information.\n\n79 _See,_ _e.g., Zhejiang E-Commerce Bank E-CNY Wallet Personal_\nInformation Protection Policy, article 2.1 and article 2.2.\n\n80 _Ibid, article 2.2._\n\n81 _See Ibid, article3.1 and article5.3.1._\n\n82 Du, supra note 68.\n\n\nof existing regulations, particularly the newly enacted DSL\nand PIPL in 2021, on the protection of personal information\nrelated to digital currencies.\n\n(1) Definition and protection principles of personal information\n\nUnder the current law, personal information in China\nrefers to all kinds of information that can be used to identify\nnatural persons— except for the information that has been\nanonymized.[83] According to the DSL and PIPL, any operational activity related to information (also called “data”) is\nreferred to as “information processing”[84] or “data processing”,[85] which generally includes, but is not limited to, the\ncollection, storage, use, processing, transmission, provision,\ndisclosure, and deletion.[86]\n\nAs regulated in the PIPL, the processing of personal\nidentifiable information needs to comply with the principles of lawfulness, legitimacy, necessity, good faith,[87] clear\nand reasonable purpose, minimum impact and scope,[88]\nopenness and transparency, and disclosure its processing\nrules, purposes, methods, and scope.[89] However, there is a\ngap between the information processing principles and the\npolicies implemented in the e-CNY pilots. For example,\naccording to the current digital currency personal information protection policies of Postal Savings Bank, when using\nits digital currency services, the individual’s mobile device\nmodel, operating system, unique device identifier, logged-in\nIP address are collected with the purpose of proper operation\nof the service and security of the user’s account.[90] However,\nsuch purpose is not clear, as it fails to disclose the criteria for\n“proper” or enumerate certain scenarios that could be considered “proper operations” or “safeguarding accounts”. It is\nalso questionable whether the process of customer’s device\ninformation (such as unique device identifier) is consistent\n\n83 Personal Information Protection Law of the People's Republic of\nChina (promulgated by the Standing Committee of the National People’s Congress, 20 August 2021, effective 1 November 2021) [33],\nCLI.1.5055321(EN) (Lawinfochina), article 2 and 73.\n\n84 _Ibid, article 4._\n\n85 Data Security Law of the People’s Republic of China (promulgated by the Standing Committee of the National People’s Congress,\n10 June 2021, effective 1 September 2021), CLI.1.5015167(EN)\n(Lawinfochina) [19], article 3.\n\n86 _Ibid, the latest 2021 PIPL further adds that the deletion of personal_\ninformation is also a form of information processing, see PIPL, supra\nnote 83, article 4.\n\n87 _Ibid, article 5._\n\n88 _Ibid, article 6._\n\n89 _Ibid, article 7._\n\n90 Postal Savings Bank E-CNY Wallet Personal Information Protection Policy, article 1.4, accessed from the terms of using e-CNY\nthrough Postal Savings Bank account in the ‘e-CNY’ application.\n\n\n-----\n\nwith the “minimum impact and scope” principle. Indeed,\nwhether accurate unique device identifiers are necessary for\ncommercial banks when customers make payments using\ne-CNY with M0 attributes is an issue that requires commercial banks to further consider and provide a compelling\njustification to public users.\n\n(2) Processing of different personal information\n\nAccording to the Cybersecurity Law and DSL, China\nimplements a “categorized and hierarchical data protection system” which employs different levels of protection\ndepending on the significance of the data.[91] In this case,\ninformation related to digital currencies would be considered critical as it relates to the financial sector that concerns\nthe national economy, and the state will take a high level of\nprotection to secure it.[92]\n\nUnlike the former that classifies the importance of data\nbased on the industries and fields, the PIPL classifies personal information into two categories: (1) general personal\ninformation and (2) sensitive personal information. According to the PIPL, sensitive information specifically refers to\ninformation that, if disclosed or used unlawfully, could easily lead to the violation of personal dignity or damage to\nthe safety of persons or property.[93] As for the processing\nof sensitive information, the processor is expected to meet\nthe following conditions: (1) has its specific purposes, sufficient necessity, as well as strict protection measures;[94] (2)\nthe individual is notified of its necessity and its impacts;[95]\nand (3) the individuals’ separate consent is obtained.[96] Similarly, e-CNY related service providers classify customers’\ninformation into general information and sensitive information,[97] however, most commercial banking policies do not\nfurther detail the conditions or obligations of service providers to process sensitive information of e-CNY users. While\nthe PIPL applies by default to all sensitive information processing practices of digital currency service providers, the\nabsence of specific commercial bank operational processes\nand related obligations in the pilot customer information\nprotection policy may lead to regulatory gaps in the protection of sensitive information of e-CNY users.\n\n91 Cybersecurity Law, supra note 71, article 31; ibid, article 21.\n\n92 _Ibid._\n\n93 PIPL, supra note 83, article 28.\n\n94 _Ibid, article 28._\n\n95 _Ibid, article 30._\n\n96 _Ibid, article 29._\n\n97 Zhejiang E-Commerce Bank E-CNY Policy, _supra note 79, arti-_\ncle 2.1.2. According to the policy, sensitive personal information of\ne-CNY users mainly includes ID number, personal biometric information, bank account number, credit information, property information, transaction information, etc.\n\n\n(3) Deletion of personal information\n\nThe collected personal information is required to be\nreturned or deleted by the processor when the commission\ncontract is terminated.[98] However, some commercial banks’\npersonal information protection policies in the current digital\ncurrency pilots stipulate that if the service is terminated, the\ncommercial bank will stop collecting, anonymize the previously collected information or continue to use the previous\ninformation when it related to archiving, auditing, antimoney laundering, co-supervising, etc.[99] Other commercial\nbanks do not determine the process of personal information\nupon termination of an e-CNY account, stipulating only that\npersonal information will be “deleted or anonymized”.[100] In\nthis context, there are potential conflicts between the current\nprocess of digital currency user’s information in the pilot\nand the new PIPL: Firstly, anonymizing previous information is not the same as the “anonymization” stipulated in the\nPIPL. According to the PIPL, anonymized personal information is not identifiable and cannot be recovered after anonymous processing. However, this contradicts the exceptions\nprovided by the e-CNY service provider, where anonymized\ninformation can still be processed in certain circumstances,\nsuch as for anti-money laundering or regulatory purposes.\nSecondly, if the anonymized information is not fully\nanonymized as specified in the PIPL, i.e., if the anonymized\ninformation can be recovered and used to identify individuals under specific circumstances, then the so-called\nanonymized information of the e-CNY service providers\nwill be managed by the PIPL as personal information. However, in the new PIPL, the only two exceptions to the deletion of the previous information are (1) the retention period\nof the information prescribed by laws and administrative\nregulations has not expired; and (2) deletion of the previous information is technically difficult to realize;[101] and in\nboth exceptions, the information processor could only have\ntwo ways of processing previous information—(1) storing\nand (2) taking the necessary security measures to protect\nthe information.[102] Therefore, unless there are other laws\nand administrative regulations, commercial banks are not\nrequired to use the previous information for archiving, auditing, anti-money laundering, or regulatory purposes, let alone\nprovide and disclose it to others. Although considering the\n\n98 PIPL, supra note 83, article 21.\n\n99 _See, e.g., Zhejiang E-Commerce Bank E-CNY Policy, supra note_\n79, article 4.4; China Construction Bank E-CNY Wallet Personal\nInformation Protection Policy, article 2.2.\n\n100 _See, e.g., Agricultural Bank of China E-CNY Wallet Personal_\nInformation Protection Policy, article 4.1.2 and 5.4.\n\n101 PIPL, supra note 83, article 47.\n\n102 _Ibid._\n\n\n-----\n\npilot policy of digital currency service providers in China,\nthe provider would delete its collected information upon\nrequest by e-CNY customers,[103] the process and manner in\nwhich customers could make such deletion requests remains\nuncertain.\n\n(4) Regulation of personal information processor\n\nAccording to the existing law, personal information processors are responsible for their activities and have an obligation to protect the information they process.[104] There are\ncurrently at least five types of institutions responsible for\nsupervising and managing the conduct of processors. To\nbegin with, the national cyberspace authority is the body\nwith overall responsibility for regulation, mainly engaged\nin the overall planning and coordination of the protection\nof personal information at the national level.[105] Second, different departments of the Chinese State Council undertake\nthe responsibility of supervising personal information protection within their respective functions.[106] Third, different\ndepartments of the local government bear the responsibility of regulation within their respective functions in their\nadministrative areas.[107] Fourth, public, and national security\nauthorities have a responsibility to oversee personal information protection and data security within their respective\nmandates.[108] Last but not least, some responsible processors of personal information also need to be supervised by\nan independent institution composed of external persons.[109]\n\nAs mentioned above, there are several potential processors of digital currency user information in China’s e-CNY\npilot, including telecom operators, telecom supervisory\nauthorities, the PBOC, and delegated commercial banks.\nWhile there is no clearly identified regulator for the processing of personal information by all CBDC-related institutions\nin China, it is no doubt that for information processed by telecom operators, their activities are regulated by national and\nlocal telecom administrative organs—the Ministry of Industry and Information Technology and local communications\nadministration.[110] The relevant telecom supervisory authorities and the PBOC would conduct their activities under the\n\n103 Zhejiang E-Commerce Bank E-CNY Policy, supra note 79, article 6.2.\n\n104 PIPL, supra note 83, article 9.\n\n105 DSL, supra note 85, article 6; PIPL, supra note 83, article 60.\n\n106 _Ibid._\n\n107 PIPL, supra note 83, article 60.\n\n108 DSL, supra note 85, article 6.\n\n109 PIPL, supra note 83, article 58.\n\n110 True Identity Information of Telephone Subscribers, _supra note_\n69, article 4.\n\n\nsupervision of their higher administrative authorities, such\nas the State Council.\nHowever, for commercial banks that provide retail CBDC\ndaily business, the specific regulator remains unclear: on\nthe one hand, the China Banking and Insurance Regulatory Commission (CBIRC) is currently the main responsible authority for supervising and regulating the conduct of\ncommercial banks; on the other hand, according to the latest\nworking paper on digital currencies released by the PBOC,\nthe PBOC is responsible for regulating the whole circulation\nof e-CNY and exploring the development of management\nmethods for e-CNY to enhance the protection of personal\ninformation.[111] Furthermore, since commercial banks generally have a huge number of users and provide important\nfinancial services to them, the monitoring and protection\nof e-CNY customers’ information meet the prerequisites of\nArticle 58 in PIPL.[112] Therefore, commercial banks need\nto establish an independent institution composed mainly of\nexternal members to monitor the protection of users’ personal information, and regularly issue their social responsibility reports on personal information for public scrutiny.\nTheoretically, multiple regulators could provide more comprehensive supervision for commercial banks. However, in\npractice, multiple regulations seem more likely to lead to\nthe unclear delineation of responsibilities among various\nregulators, resulting in coordination costs, regulatory gaps,\nor regulatory overlaps.[113]\n\nIn conclusion, there are gaps between the current pilot\npolicies of e-CNY in China and the regulation of personal\ninformation protection of digital currency customers. Further, the existing regulatory provisions do not provide comprehensive legal protection for digital currency users. Thus,\nthere is a need to reconsider the future development of the\nregulatory framework for digital currency service providers, as well as the forward-looking provisions regarding the\nCBDC in China.\n\n## Proposed regulatory framework for CBDC in China\n\nThe regulation of CBDC needs to strike a balance between\ninformation protection and supervisory compliance. On the\none hand, protecting user’s personal information is a primary\nregulatory consideration; on the other hand, financial service\n\n111 PBOC Working Group, supra note 4, at 14–15.\n\n112 PIPL, supra note 83, article 58.\n\n113 Bischof, J. et al. (2021) A Tale of Two Supervisors: Compliance with Risk Disclosure Regulation in the Banking Sector. Contemporary Accounting Research, advance online publication 8 July,\n10.1111/1911–3846.12715.\n\n\n-----\n\nproviders need to comply with “know-your-customer” guidelines to prevent criminal activities. The protection of the\npersonal information of CBDC users is closely related to the\nsuccess of digital currency generalization, and information\nprotection is particularly important when the PBOC attempts\nto collaborate with other central banks to find the potential\nof m-CBDCs. This chapter, therefore, proposes a regulatory framework for CBDC information protection in China,\nlinking digital currency protection to existing regulations,\nand discussing the identity of regulators and their specific\nrights and obligations within the future CBDC regulatory\nframework in China.\n\n### Refine the classification of information processing\n\nThe current classification of personal information protection\nis broadly divided into two types: the first classification is\nbased on industry, which classifies information into general industry information and important industry information; and the second is based on whether the information\nis sensitive, classifying personal information into general\ninformation and sensitive information. The obligations of\ninformation processors differ according to the significance\nof the information—important industry and sensitive information require more processing prerequisites and protection\nmeasures. However, current regulations do not classify the\nprocessing of information, and different categories of processing may have varying effects on users.\nMore specifically, based on the degree of the potential impact of information processing on individuals, the\ninformation processing may be classified into (1) general\ninformation processing (e.g., collection, storage, use, and\ndelete); (2) information processing involving third parties\n(e.g., transmission, provision, etc.); and (3) disclosing information. As for the second and third types of information\nprocessing, additional obligations need to be imposed on\ninformation processors.\nIn terms of general information processing, as mentioned\nabove, there is a potential conflict between the PIPL and\ncommercial banks’ policies regarding the deletion of customers’ personal information. This article suggests that commercial banks’ policies need to clarify whether they would\nanonymize or delete users’ personal information when the\nservice ends. On the one hand, the commercial bank policy,\nin the name of “anonymization”, does not remove the identifiability of personal information as it can still be processed\nin certain cases. The policy needs to be modified to comply\nwith the PIPL. On the other hand, considering the secrecy of\nfinancial crimes or crimes related to digital currencies, the\ncomplete deletion or anonymization of personal information\nmay not be conducive to the tracking and investigation of\ncrimes committed before the service is terminated. Thus, it\nis recommended that (1) a well-protected, specialized system\n\n\ncould be established to store the personal information of\nderegistered users; (2) relevant authorities, such as public\nsecurity and national security authorities, may determine\na reasonable period for the continued storage of the personal information; and (3) the law should establish prerequisites for the processing of information and require strict\napproval and necessity review by an independent third party\nfor processing other than storage and adoption of protective\nmeasures.\nSecondly, according to Article 23 in PIPL, when transmitting and providing information to others, the information\nprocessor is expected to notify the individual of the recipient’s basic information, including but not limited to its purposes, name, and contact number. Further, the consent of the\nindividual has required if the domestic recipient changes the\noriginal purposes or methods of the processing;[114] while for\nrecipients outside of China, in addition to notification, the\nprocessor transmission and provision requires the individual’s separate consent.[115] Considering that the information\ntransmission would increase the risks of information leakage\nand that the absence of a separate consent may undermine\nthe individual’s privacy self-management rights.[116] It is suggested that in the case of domestic information transmission,\nseparate consent is required for any processing of information, i.e., not only for changes in the purpose and method\nof processing, but all processing requires the individual’s\nseparate consent.\nAs for the disclosure of information, processors need to\nobtain the individual’s separate consent before disclosing\npersonal information.[117] Nonetheless, considering that the\ndisclosure of personal information could easily lead to irreversible effects on individuals, processors are recommended\nfurther to inform individuals of the possible effects of disclosure and warn of the risk of disclosure.\nIn short, it is recommended to improve the regulation of\ndifferent types of processing information to provide more\ncomprehensive protection for digital currency customers.\n\n### Enhance the compliance of CBDC service providers\n\nAs analyzed in Sect. “Practical and regulatory issues of\nE-CNY pilot in China”, there are a number of information\nprotection issues related to individual e-CNY service providers in the pilot. Especially after the establishment of the\nnew DSL and PIPL, commercial banks’ information protection policies should be refined and revised to comply with\n\n114 PIPL, supra note 83, article 23.\n\n115 _Ibid, article 39._\n\n116 Solove [35] Introduction: Privacy self-management and the consent dilemma. Harvard Law Review 126: 1880–1883.\n\n117 PIPL, supra note 83, article 25.\n\n\n-----\n\nthe current regulations. In addition, all the digital currency\nservice providers are expected to establish their personal\ninformation protection compliance system for digital currency users and be subject to regular review and oversight\nby external independent institutions as well as regulators.\nIn such cases, the know-your-customer institutions need\nto reconsider the reasonableness and necessity of the purposes for which they process personal information, particularly for the processing of sensitive information. Further,\nservice providers are required to clearly inform e-CNY\nusers of the specific purpose of their information processing practices, and any further processing that is inconsistent\nwith that purpose, with exception as provided by law and\nadministrative regulations, may require separate notification and get consent from the user. Thus, for the aforementioned example of commercial banks processing information\nrelated to personal mobile devices, banks are expected to\nexplain their reasons for doing so.\nIn spite of self-censorship, external regulation is necessary to monitor the compliance of digital currency information protection obligators, which brings this chapter to the\nnext suggestion regarding regulatory authorities for CBDC\ninformation processors.\n\n### Reshape the regulatory authority framework for CBDC service providers\n\nAs mentioned above, the multiple regulatory authorities of\nthe commercial bank would lead to coordination costs, regulatory gaps, or overlaps in practice, thus it is necessary to\nclarify the major regulator of the information processing of\nCBDC service providers. Generally, the regulator of commercial banks in China is the CBIRC, which mainly regulates and supervises the market conduct of banks. In terms\nof specific CBDC users’ personal information protection,\nthe CBIRC is responsible for regulation. According to the\nexisting established PBOCL, the PBOC is responsible for\nmacro-control and maintaining the stability of the banking\nindustry, and there is no provision for the PBOC to regulate\nthe CBDC information of commercial banks.\nNonetheless, according to the latest revised draft of\nPBOCL, the regulatory scope of PBOC includes but is not\nlimited to banks, financial asset management companies,\ntrust and investment companies, and finance companies.\nFurther, the PBOCL 2020 draft attempts to stipulate that\nPBOC is responsible for developing the fundamental system\nfor financial consumer protection and leading the establishment of a coordination mechanism for financial consumer\nprotection. Thus, the overall regulator of CBDC personal\ninformation protection is likely to be the PBOC in the future.\nIn this context, it is significant to delineate the future rights\nand obligations of the CBIRC and PBOC.\n\n\nFirst of all, while the national cyberspace administration\nis responsible for the overall supervision of personal information protection, the general planning and management\ninstitution concerning the information protection of digital\ncurrency shall be the PBOC. It is because that the information protection of digital currency is related to the credibility and stability of the whole financial system. PBOC, as\nthe authority responsible for the issuance and circulation of\ndigital currency, is more appropriate as the macro regulator\nof CBDC information.\nSecondly, specific supervision of the protection of digital\ncurrency user information in commercial banks shall be carried out by the CBIRC. In other words, the daily processing\nof user information by commercial banks is supervised by\nthe CBIRC, and the PBOC is responsible for coordinating\nand centrally supervising the information processing of multiple e-CNY service providers.\nAs for the external independent institution established\nfor oversight purposes, considering that the independent\ninstitution is not a government authority, it is recommended\nthat the institution shall be required to conduct independent reviews and disclose audit reports on the information\nprocessing of commercial banks and other digital currency\nservice providers. Further, the regulations on the independent institution should be more specific about its composition,\nobligations, and relationship with other supervisors.\n\n### Specify the authority and prerequisites to ‘Know‑your‑customer’\n\nOne of the overarching concerns in the design of the CBDC\nregime is to combat illegal activities involving currency\ntransactions, which requires a balance between information\nprotection and regulatory compliance. The PBOC emphasizes that the CBDC system collects less information on\ntransaction payments than traditional e-money transactions because of its controllable anonymity and that CBDC\ntransaction authorities shall not provide user information to\nthird parties, including unauthorized government agencies\nunless otherwise required by law and other regulations.[118]\nIn this case, the anonymity of the CBDC design is necessarily required to meet the prerequisite of suppressing illegal\nactivities such as money laundering, terrorist financing, and\ntax evasion.\nThe PBOC currently employs the size of the transaction\namount to classify the degree of user information anonymity. However, when criminals use multiple user accounts to\nbypass the traceability requirements for large transactions\nand satisfy their criminal purposes through multiple anonymous small transactions, relying solely on the transaction\n\n118 PBOC, supra note 4, at 7.\n\n\n-----\n\namount as the criterion for anonymizing user information\nmay not fully combat illegal activities involving the misuse of CBDC. The difficulty of identifying user identity in\nthe case of the small volume of transactions may hinder the\nfight against crime, so how to transmit information legally\nto reduce illegal crime is an issue that requires checks and\nbalances. It is proposed to link CBDC transaction information to big data analytics, where authorized CBDC trading\ninstitutions are entitled to monitor payment transactions as\nstewards and to de-anonymize suspicious transactions when\nneeded to combat illegal activities. In other words, anonymization does not mean that CBDC transaction information\ncannot be recorded and tracked. Further regulations regarding access to CBDC user information to combat crime are\nproposed to grant the relevant CBDC transaction agencies\nthe right to monitor payment transactions, to conduct realtime monitoring and big data analysis of the frequency of\ntransactions and transaction amount, etc., and to determine\nthe prerequisites for the agencies to know their customers.\nThe latest research report released by the PBOC lists several criminal activities with e-CNY that may require to be\nguarded, including but not limited to telecom fraud, online\ngambling, money laundering, and tax evasion.[119] Nevertheless, the PBOC does not specify how to prevent such illegal\nactivities with e-CNY misuse. It is recommended that the\nde-anonymization of CBDC user information and its transmission to other government agencies be specified and regulated by law in order to combat these criminal activities.\n\n## Conclusion\n\nChina has recently announced the outline of its 14th FiveYear Plan for National Economic and Social Development,\ndeciding to establish a sound modern financial system with a\nhigh degree of adaptability, competitiveness, and universality, of which the digital currency is expected to be a significant component.[120] In such context, it is significant to examine the design and regulation of CBDCs based in China and\nwith a global perspective. This article provides a comprehensive review of the design of CBDCs in various countries\nand, on this basis, illustrates the current design choices in\nChina. It is the first article to analyze current e-CNY practice\n\n119 _Ibid._\n\n120 PRC Government (2021) Zhonghua Renmin Gongheguo Guomin\nJingji He Sehui Fazhan Di Shisige Wunian Guihua He 2035 Nian\nYuanjing Mubiao Gangyao (中华人民共和国国民经济和社会发展\n第十四个五年规划和 2035 年远景目标纲要) [Outline of the Fourteenth Five-Year Plan for National Economic and Social Development\nof the People's Republic of China and the 2035 Visionary Goals],\n12 March, [http://​www.​gov.​cn/​xinwen/​2021-​03/​13/​conte​nt_​55926​81.​](http://www.gov.cn/xinwen/2021-03/13/content_5592681.html)\n[html, accessed 12 September 2021.](http://www.gov.cn/xinwen/2021-03/13/content_5592681.html)\n\n\nand regulatory issues in detail through empirical and doctrinal studies, concluding that there are gaps between e-CNY\ndesign and practice, between practice and regulation, and\nbetween regulation and the expected information protection\nmechanism.\nE-CNY in China has tremendous potential in the financial services sector, but many challenges must first be overcome. Considering the large number of digital currency\nusers involved in the retail CBDC, improving the protection\nof user’s information is a necessity. This article identifies\nthe main issues of e-CNY in pilots and attempts to provide\nseveral suggestions for improving the protection of digital\ncurrency information. Although this paper has not further\nexamined the issue of cross-currency and cross-border payments of e-CNY, it is necessary to address the practical and\nregulatory issues revealed in the current DC/EP pilot before\ndiscussing the internationalization of e-CNY. In this regard,\nthis paper provides a sound basis for future research on the\ncooperation and transactions of multiple CBDCs.\n\n### Declarations\n\n**Conflict of interest The author states that there is no conflict of inter-**\nest.\n\n## References\n\n1. Adrian, T. and Mancini-Griffoli, T. 2019. The Rise of Digital\nMoney. Annual Review of Financial Economics, 13(1).\n\n2. 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