The director of the People’s Bank of China’s (PBoC) Digital Currency Research Institute says designing its digital currency to be fully anonymous isn’t “feasible.”

Mu Changchun said the bank needs to balance privacy for users with “international consensus” on risk control, according to a report from STCN, a state-owned daily newspaper.

“The anonymity of the central bank’s digital currency is limited under the premise of controllable risks,” Mu said at the China Development Forum in Beijing on Saturday. “A completely anonymous central bank digital currency is not feasible” as it would would violate anti-money laundering, anti-terrorist financing and anti-tax evasion regulations, he said.

However, Mu argued the digital yuan would provide more privacy than commercial payments products like bank cards, WeChat or Alipay, which are tied more closely to the banking system.

The most anonymous digital yuan wallet would be linked to a cellphone number and allow users to make small payments. Those wishing to transact larger amounts would need to upgrade to one with more know-your-customer verification procedures, according to Mu.  

China is leading major nations in the development and piloting of a central bank digital currency (CBDC), but the project has raised concerns around the amount of insight it would give authorities into users’ financial data and behavior.

Read more: China, Singapore Look Ahead to CBDC Future at World Economic Forum

Its planned “controllable anonymity” will mean the central bank could observe and monitor transactions taking place while the transacting parties would remain private. But it still allows the PBoC to analyze transactions to monitor “crimes.”

Mu said digital yuan wallets use “ID anonymization technology” meaning personal information is concealed from “counterparties, operating agencies and other commercial institutions.” However, too great an emphasis on anonymity raises the cost of fighting crime, and could bring severe consequences, he said.

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