The Chinese central bank’s (CBDC) digital currency is moving rapidly towards deployment. For the first time since the project started over 7 years ago, the People’s Bank of China (PBoC) has published a white paper with the most important advances of the digital Yuan or the e-CNY.
The project began in response to cryptocurrencies, such as Bitcoin, in a new global context with a digital economy, the document says. Two years ago, the use of cash in China fell. People have started paying via mobile payment, as a survey conducted by the financial institution shows.
46% of participants did not use cash, with digital and mobile payments accounting for more than half of transactions made during this period. In addition to a clear change in the payment habits and preferences of their citizens, the PBoC says cash management requires resources that could otherwise be used for other industries.
While recognizing the potential of Bitcoin and other cryptocurrencies, the Chinese government views these digital assets as speculative instruments, tools to gain anonymity, and the backbone of illegal activity. Thus, they think that BTC, ETH and others “lack intrinsic value” and cannot be used as currencies.
Therefore, the institution argued that its central bank launched the e-CNY project to launch a digital version of a fiat currency managed by “authorized operators”. This CBDC will function as a legal tender hybrid payment instrument.
In this sense, the PBoC has specified that its e-CNY will have the “basic functions of money” (unit of account, medium of exchange, store of value).
The issuance and circulation of the e-CNY is identical to the physical RMB, while the value of the former is transferred in digital form. Third, e-CNY is the central bank’s liability to the public. Backed by sovereign credit (…).
In addition, the PBoC finally revealed some of the main features of the CBDC, such as smart contracts, private transactions, and clarified that digital currency will coexist with their physical yuan.
What is e-CNY and its main features
E-CNY is legal tender issued by PBOC. It adopts centralized management and is positioned as a cash payment document (M0).
– Sino Global Capital (@sinoglobalcap) July 16, 2021
Implications of smart contracts on the Chinese CBDC
Developing these key characteristics, the financial institution said its CBDC will be able to perform automatic payment transactions. Similar to a smart contract on a private blockchain, e-CNY can perform transactions when certain conditions are met.
In this way, China seeks to usher in new business models and promote future innovation. In terms of confidentiality, the Digital Yuan will have “controllable anonymity and users will be able to hide some of their data from others, but the PBoC will exercise full oversight.
According to the document, the CBDC has successfully completed its high-level design, function development and system testing. As a result, the PBoC was able to move to a phase of testing the system in “representative regions”.
An official date for the deployment of the e-CNY must be announced. The financial institution has yet to determine the level of confidentiality of transactions, but many are speculating that the CBDC could be a big part of the Beijing 2022 Winter Olympics.
China’s digital currency has been heavily criticized. Many fear that the e-CNY will be used to exert excessive control over the country’s population and to better control their financial independence.
A founding partner of Primitive Crypto, Dovey Wan, believe the launch of the Digital Yuan or e-CNY will mark the beginning of a conflict between two parties. One could be represented by Bitcoin and BTC holders, the other by e-CNY users:
The struggle between absolute sovereign power against the most robust meta-sovereign power will mark the beginning of a major upheaval in our monetary universe.
At the time of writing, Bitcoin is trading at $ 31,928 with losses in longer time frames and sideways movement in the daily chart.