Military junta-ruled Myanmar is planning to create a central bank digital currency (CBDC) that will join the kyat as legal tender.
The oppressive ruling military council said it believes a “digital currency will help improve financial activities in Myanmar,” the deputy information minister, Maj. Gen. Zaw Min Tun, told Bloomberg Thursday (Feb. 3).
The Southeast Asian nation could use help. The World Bank said it expects Myanmar’s economy to grow 1% this year after shrinking 18% last year, following the Jan. 29, 2021, coup.
Stablecoins have been embraced by ousted civilian leader Aung San Suu Kyi’s Nation Unity government-in-exile. In December, it declared Tether’s USDT its official currency. Of course, that was largely for fundraising and to thumb its nose at the junta, which banned cryptocurrencies in May 2020.
So, a central bank digital currency (CBDC) seems like a reasonable idea on its surface, particularly in a country as poor as Myanmar, which could use a financial tool that helps the unbanked get recognized by the financial system.
And there’s the rub: Virtually no one in Myanmar wants to be recognized. And with good reason.
Citing “daily atrocities,” Human Rights Watch’s Asia director, Brad Adams, asked on the coup’s anniversary last week, “How many more people does Myanmar’s military have to detain, torture and shoot before influential governments act to cut off the junta from its flow of money and arms?”
Is Privacy Possible?
That’s the thing about CBDCs. Despite their many benefits — ranging from faster and cheaper transaction settlement to financial inclusion — they have one very big flaw: surveillance.
For all the talk of bitcoin’s anonymity — which is overstated — cryptocurrencies can be tracked fairly easily. After all, the entire transaction history of every token is publicly viewable online. It’s difficult, but not impossible, to connect the transaction to the bitcoin’s owner.
While a CBDC could have that less-than-perfect shield of anonymity, its unlikely it would even in free, democratic countries, the Financial Times (FT) concluded in May. In an article titled “Why CBDCs will likely be ID-based,” FT said, “central banks are realizing CBDCs will have to be intimately linked to identity to deal with illicit finance and bank disintermediation risk.”
At the time, Goldman Sachs’ economic research division concluded that “to avoid facilitating illicit activity, central banks have mostly decided against fully anonymous accounts or capped anonymous transactions, and have tasked commercial bank intermediaries with monitoring customers and transactions,” FT reported.
“What CBDC research and experimentation appears to be showing is that it will be nigh on impossible to issue such currencies outside of a comprehensive national digital ID management system,” FT added. “Meaning: CBDCs will likely be tied to personal accounts that include personal data, credit history and other forms of relevant information.”
That will be true to some extent even for a U.S. digital dollar. In a test of technical designs for a U.S. CBDC announced Thursday, researchers from the Federal Reserve Bank of Boston and the Massachusetts Institute of Technology’s Digital Currency Initiative (DCI) said they knew that consumer privacy would be an essential design element, but ultimately, its privacy features would be determined by elected officials.
However, the team “created architectures where 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 excited about in the next phase of work is exploring cryptographic designs for privacy. We have a lot of techniques in computer science that can help us verify the integrity of information while not necessarily revealing exactly what that information says.”
In terms of major economies, China is far ahead not just in the design and launch of a CBDC, but also in considering privacy features.
“A completely 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.
“We know the demand from the general public is to keep anonymity by using paper money and coins,” Mu said in 2019. “We will give those people who demand it anonymity in their transactions. But at the same time, we will keep the balance between the ‘controllable anonymity’ and anti-money laundering, CTF [counter terrorist financing], and also tax issues, online gambling and any electronic criminal activities.”
It seems like a good bet that Myanmar’s government will go at least that far, if not strip out anonymity altogether.