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Myanmar, which is ruled by the military junta, plans to create a central bank digital currency (CBDC) that will be legal tender alongside the kyat.
The repressive ruling military council said it believes a “digital currency will help boost financial activity in Myanmar,” Deputy Information Minister Maj. Gen. Zaw Min Tun told Bloomberg on Thursday (February 3).
The Southeast Asian nation could use some help. The World Bank expects Myanmar’s economy to grow 1% this year after contracting 18% last year following the Jan. 29, 2021 coup.
Stablecoins have been embraced by the Unity nation’s government-in-exile, ousted civilian leader Aung San Suu Kyi. In December, it declared Tether’s USDT as its official currency. Of course, this was largely for fundraising purposes and to turn their noses up at the junta that banned cryptocurrencies in May 2020.
Therefore, at first glance, a central bank digital currency (CBDC) seems like a sensible idea, especially in a country as poor as Myanmar, which could leverage a financial tool that helps those who are unbanked to be recognized by the financial system.
And there’s the catch: Virtually nobody in Myanmar wants to be recognized. And for a good reason.
Citing “daily atrocities,” Human Rights Watch Asia director Brad Adams asked on the anniversary of the coup last week, “How many more people does Myanmar’s military have to arrest, torture and shoot before influential governments act to end the… cut off the junta from their flow of money and arms?”
Is privacy possible?
That’s the thing about CBDCs. Despite their many benefits – from faster and cheaper transaction processing to financial inclusion – they have one very big flaw: surveillance.
For all the talk of Bitcoin anonymity — which is an exaggeration — cryptocurrencies can be tracked fairly easily. Finally, the entire transaction history of each token is publicly viewable online. It is difficult, but not impossible, to link the transaction to the owner of the bitcoin.
While a CBDC could have that less-than-perfect shield of anonymity, it’s unlikely that would be the case even in free, democratic countries, the Financial Times (FT) concluded in May. In an article titled “Why CBDCs will be ID-based,” FT said, “Central banks recognize that CBDCs need to be tightly linked to identity to deal with illicit finance and the risk of tampering.” to deal with bank disintermediation.”
At the time, Goldman Sachs’ economic research department concluded that “to avoid illegal activity, central banks have mostly opted against fully anonymous accounts or limited anonymous transactions, and have hired commercial banking intermediaries to monitor customers and transactions,” FT reported.
“What CBDC research and experimentation seems to show is that it will be nearly impossible to issue such currencies outside of a comprehensive national digital ID management system,” FT added. “Importance: CBDCs will likely be tied to personal accounts containing personal information, credit history, and other forms of relevant information.”
This sometimes even applies to a digital US dollar. In a test of technical designs for a US CBDC announced Thursday, researchers at the Federal Reserve Bank of Boston and the Massachusetts Institute of Technology’s Digital Currency Initiative (DCI) said they knew consumer privacy would be a key design element, but ultimately its privacy functions would be set by elected officials.
Continue reading: Boston Fed, MIT Digital Dollar Test questions blockchain as a processing platform
However, the team “created architectures that the central bank didn’t necessarily need to see or store [much] User information,” said Neha Narula, director of MIT’s DCI. “What I’m really looking forward to in the next phase of work is exploring cryptographic designs for privacy. We have many techniques in computer science that can help us verify the integrity of information without necessarily revealing exactly what that information says.”
Controlled anonymity
In terms of major economies, China is way ahead not only in designing and adopting a CBDC, but also in incorporating privacy features.
“A fully anonymous central bank digital currency is not an option,” said Mu Changchun, director of the Digital Currency Research Institute at the People’s Bank of China. Instead, he said, the digital yuan will have “controllable anonymity” as a key feature. It’s not a new concept.
See also: China is pushing for global rules for CBDCs
“We know that the public’s demand is to maintain anonymity through the use of paper money and coins,” Mu said in 2019. “We will grant anonymity in their transactions to people who demand it.” But at the same time we will keep the balance between “controllable anonymity” and anti-money laundering, CTF [counter terrorist financing]and also tax issues, online gambling and all electronic criminal activities.”
It seems a good bet that Myanmar’s government will go at least as far, if not scrap anonymity altogether.
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