China’s central bank digital currency (CBDC) is moving fast towards its deployment. For the first time since the project was launched over 7 years ago, the People’s Bank of China (PBoC) has released a Whitepaper with the digital Yuan or e-CNY’s most important progress.
The project started as a response to cryptocurrencies, such as Bitcoin, in a new world context with a digital economy, the document states. Two years ago, the use of cash in China plummeted. People started paying for things via mobile payment, as demonstrated by a poll conducted by the financial institution.
46% of the participants used no cash with digital and mobile payments accounting for over half of the transactions conducted during this period. In addition to a clear change in their citizens’ payments habits and preferences, the PBoC claims that cash management takes resources that could otherwise be employed for other sectors.
Despite acknowledging 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 activities. Thus, they believe BTC, ETH, and others, “lack intrinsic value” and can’t be used as currencies.
Therefore, the institution argued that their central bank started the e-CNY project to launch a digital version of a fiat currency run by “authorized operators”. This CBDC will work as a hybrid payment instrument with legal tender status.
In that sense, the PBoC clarified that their e-CNY will have the “basic functions of money” (unit of account, medium of exchange, store of value).
The issuance and circulation of e-CNY is identical with physical RMB, while the value of the former is transferred in a digital form. Thirdly, e-CNY is the central bank’s liabilities to the public. Backed by sovereign credit (…).
In addition, the PBoC finally revealed some of the CBDC’s main features, such as smart contracts, private transactions, and clarified that the digital currency will co-exist with their physical Yuan.
What is e-CNY and its key features
E-CNY is a legal tender issued by PBOC. It adopts centralized management and is positioned as a cash payment voucher (M0).
— Sino Global Capital (@sinoglobalcap) July 16, 2021
Implications of Smart Contracts On China’s CBDC
Expanding on these key features, the financial institution said that their CBDC will be able to carry out automatic payment transactions. Similar to a smart contract on a private blockchain, e-CNY can make transactions when certain conditions are met.
In that way, China seeks to usher new business models and promote future innovation. In term of privacy, the digital Yuan will have “controllable anonymity and users will be able to keep part of their data hidden from other, but the PBoC will hold complete supervision.
According to the document, the CBDC has successfully completed its top-level design, function development, and system testing. As a result, the PBoC has been able to move to a system testing phase in “representative regions”.
An official rollout date for the e-CNY is to be announced. The financial institution still needs to determine the level of privacy of the transactions, but many speculate on the possibility that the CBDC will 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 excess further control on the country’s population and gain more control over their financial independence.
A founder partner at Primitive Crypto, Dovey Wan, believes the launch of the digital Yuan or e-CNY will mark the beginning of a conflict between two sides. One could be represented by Bitcoin and BTC holders, the other by e-CNY users:
The fight between absolute sovereign power vs most robust meta sovereign power will mark the start of a major upheaval in our monetary universe.
At the time of writing, Bitcoin trades at $31,928 with losses in higher timeframes and sideways movement in the daily chart.