This is part one of a multiplayer series on blockchain and crypto in China.
China has been discussing the possibilities of the national digital currency for half a decade, and the Chinese digital yuan project – ‘Digital Digital Currency Electronic Payment’, or DCEP, has years of history. Back in 2014, the People’s Bank of China set up a research group to study digital currencies and application scenarios. The research team conducted a study of digital currencies and allegedly considered issuing its own digital currency. In 2016, the PBoC announced plans to develop its own digital currency and began hiring blockchain experts. That same year, China’s state council included blockchain technology in its 13th five – year plan.
In 2017, the PBoC launched the Digital Currency Research Institute, which focused on the development and research of digital currencies. According to China’s National Intellectual Property Administration (formally known as the State Intellectual Property Office), during its first year of existence, the institute filed more than 63 patent applications related to blockchain and crypto. In 2018, a report – issued by the Chinese Institute of International Finance, which operates under the People’s Bank of China – indicated that the central bank would impose a legal measure against all types of digital currencies.
In July 2019, Wang Xin, director of the PBoC’s research bureau, said that Facebook’s plan to launch its own stable, Libra (now known as Diem), influenced China’s plans to take a digital form of the Chinese yuan. to launch. At the time, some experts predicted that the Chinese government-backed digital currency would roll out earlier than the official launch of Libra.
Related: China’s central bank develops own digital currency in response to Libra
Last year, the DCEP project made significant progress; meanwhile, the details of the project have remained limited. While the question of whether the first launch of a CBDC will be enough to maintain global reserve currency status remains open, China is clearly leading the charge in the digital economy.
Related: China’s CBDC is about domestic domination and not about beating the dollar
Just this year, China began testing the infrastructure for the digital yuan before its official launch, and the Chinese city of Shenzhen gave its citizens a chance to take part in a lottery event aimed at accepting the country’s acceptance. encourage new digital central bank currency. Also this year, China completed the development of hardware wallets for the digital yuan project; the first one was manufactured by the Xiong’an branch of the Agricultural Bank of China in Hebei and the second one by the Postal Savings Bank of China. And earlier in March, the Bank of Communications and China Construction Bank conducted digital yuan trials at two major branch stores in Shanghai.
Digital Yuan to Cryptocurrency
A major concern among experts is that China’s CBDC is unlikely to be a cryptocurrency. As underlined by Bloomberg in 2019: “The PBOC will obviously support the digital yuan, making it the opposite of decentralized.” China’s new digital currency is likely to be a centralized digital currency rather than a real currency. As Shao Fujun, chairman of China UnionPay and a former PBoC official, said in August 2019, China’s state-owned digital currency ‘will have many positive consequences, including tracking cash flow in economic activities and supporting the making of monetary policy. ‘
Mu Changchun, deputy director of the Chinese central bank’s payments division, said in 2019 that the upcoming digital yuan would strike the balance between facilitating anonymous payments and preventing money laundering. He reiterated the statement earlier this month, saying that a completely anonymous CBDC “is not feasible” because a national digital currency must meet the requirements related to anti-money laundering, counter-terrorism financing and tax evasion. Meanwhile, Chinese authorities are prepared to ensure maximum privacy through the country’s central bank’s currency, according to Mu’s recent statement.
The question of whether the PBoC currency will be like decentralized cryptocurrency-based cryptocurrencies and whether it will give Beijing more control over its financial system is an important question. Nevertheless, the development of the digital yuan has undoubtedly influenced the development of the digital economy inside and outside China. Cointelegraph reached out to experts in the blockchain and crypto space from China for their views on the following questions: How has the development of the digital yuan affected the entire crypto and blockchain industry in China? Will the Chinese CBDC remain centralized or gradually become decentralized over time?
Chang Jia, founder of Bytom and 8btc:
“The Chinese digital yuan was designed and introduced by the PBoC (China’s central bank). It is based on building China’s basic financial network for decades, and is backed by government credit. Therefore, its birth undoubtedly encourages China’s entire blockchain industry, especially the companies that have persisted for several years with the underlying blockchain technology, digital currency infrastructure construction and industrial blockchain solutions to see their future use, and even the big vision of listing on the STAR Market.
Initially, the Chinese digital yuan DCEP focused on a trial in the CCB (China Construction Bank). Once proven basic operation, it will also get basic feedback from all societies and urban people’s livelihoods in China. With the gradual clarification and strengthening of DCEP in the national economy and the existence of the people, such a great digital currency system as DCEP is definitely needed to build the state and the people together in many ways to create a new digital yuan network and to actively explore internationalization. ”
Daniel Lv, co-founder of Nervos:
‘The fact that China is working on a digital yuan is proof that there is value in digital assets and the underlying blockchain technology. The main purpose of the establishment of a central bank’s digital currency is to protect monetary sovereignty from concerns that Bitcoin and other cryptocurrencies will have an impact. The DCEP will also improve the efficiency of payment systems and improve the ease of yuan payments.
Blockchain itself is a combination of many existing mature technologies, such as asymmetric cryptography, consensus algorithm, timestamp, etc. .
The digital yuan adopts a two-tier system for issuance and distribution – the central bank issues DCEP to banks or other financial institutions, and then these institutions distribute the digital currency further to the public. Although the issuance of DCEP is centralized, the circulation may be based on traditional financial accounting systems or blockchains.
If DCEP transactions take place on a public blockchain, I assume it will probably help the yuan to internationalize. The Central Bank of China had earlier announced that the DCEP pilot scenario would include venues for the Winter Olympics. Foreign entities can simply open a DCEP wallet to execute the cross-border transaction, as the requirements to open a DCEP wallet are much lower than those to open a yuan deposit account. Peer-to-peer transactions can be initiated between any two DCEP wallets. ”
Discus Fish, co-founder of F2Pool and Cobo:
‘The digital currency of the central bank is essentially completely different from Bitcoin and other cryptocurrencies, because it is essentially still the centralized fiat currency. However, the CBDC can strengthen the public’s perception of blockchain and cryptocurrency. In the long run, under central bank training, the blockchain industry will attract a large number of new users, especially the young people growing up in the mobile internet environment, leading to the rapid development of the industry. This has a long-term positive impact on the industry.
The core of CBDC is the centralized fiat currency, which is still the central bank’s debt to the public. Therefore, the central bank will follow the centralized management mode. This relationship between creditor’s rights and debt will not change if the monetary form changes. Therefore, I think, no matter how the form develops, it is impossible for the central bank’s digital currency to be decentralized. ”
Kevin Shao, co-founder of Bitrise Capital:
“The development of the internet has led to the popularization of electronic payments, especially the applications of Alipay and WeChat payment, which has changed the habit of many people around cash use. Such changes drastically affect China’s financial development. The central bank also follows the trend of digital economic development, from the top-level design of the country, and builds a complete set of electronic payment infrastructure.
At present, the central bank has not made a final decision on what technical means will be used for the digital currency. However, we have seen that some cities have experimented with digital currencies. But in general, China’s digital currency continues to serve the central bank’s monetary policy and functions. ”
All interviews were in the Cointelegraph China’s Top 100 notable people in Blockchain by 2020. Cointelegraph China contributed to the interviews.
The views, thoughts and opinions expressed here are those of the authors only and do not necessarily reflect the views and opinions of Cointelegraph.
The quotes have been edited and summarized.