China has been moving toward a cashless society for some years now so the introduction of a Chinese cryptocurrency should come as no surprise. In 2020 it was reported that 4 out of every 5 payments were cashless, creating a $49 trillion industry. As the Chinese trailblaze the development of financial technology, the government will soon be rolling out their Digital Currency Electronic Payment (DCEP) more commonly known as the “Digital Yuan”. Many are suspecting that this roll out is intended to go past just their internal borders.
What Is The Digital Yuan (DCEP)
While the concept of CBDC (Central Bank Digital Currency) is not new, the DCEP is leading the way in terms of a country making it a reality. Having been in development for over 5 years now, the DCEP underwent a trial in September and will be dispersed across several e-commerce platforms and nonfinancial institutions such as UnionPay, Tencent, and Alibaba across the country.
As the Digital Yuan is backed by actual yuan, banks are being told to convert a part of their yuan holdings into the digital form and dispense them through mobile technology to various businesses and citizens. Utilizing near-field communication (NCF) technology - the same technology used for Google Pay and Samsung Pay, etc - the DCEP can operate and execute transactions without the need of a bank or internet. This widens the net, allowing unbanked regions and people living in rural settings to enter the mainstream economy.
The Advantages Of A Chinese Cryptocurrency
Alongside the advantages of a CBDC, having a centralized digital currency allows the governments to analyze and better track the flow of money in the country. It also offers a higher level of protection from counterfeit money. In addition to that the Digital Yuan will help the government clamp down on illicit activities like money laundering, corruption, tax evasion, and the financing of terrorists. While transactions can remain anonymous on the public system, the People’s Bank of China (PCoB) and governments are able to bypass this and see all transaction activity and history.
Additionally, this DCEP could set an international standard for digital centralized bank currencies, as well as be used to facilitate international payments. It is believed that the Digital Yuan could fast track international transactions and reduce China’s reliance on SWIFT payment systems.
Digital Currency Electronic Payment Versus Cryptocurrencies
Comparing the two there are some substantial differences. Most notably, the fact that the DCEP is a legal tender issued by the PBoC under the government’s approval while cryptocurrencies have had an on/off status of being legal in the country. The DCEP will be implemented across the country and is presumed to eventually take over as the payment method of choice.
The next comes as a result of looking at market availability. While cryptocurrencies are entirely decentralized and operated through a network of nodes (computers) around the world, the DCEP has a more controlled supply and economic system. This will be entirely controlled by the Chinese government. And lastly, while cryptocurrencies are celebrated for their anonymity (varying degrees of anonymity based on which crypto), the DCEP system will be entirely traceable by the PBoC and the government.
In April of last year a number of pilot programs were launched across big cities, namely Shenzhen, Suzhou, Xiong’an, and Chengdu. The system was compared to that of WeChat Pay and Alipay but without the need for internet or a linked bank account. The response was largely positive, with the whole process being described as “easy and fast”. It is believed that the pilot program was pushed out in order to get the DCEP ready in time for the Beijing 2022 Winter Olympic Games.
Will China Be The First Across The Finish Line?
In 2016 the PBoC initiated a digital currency research centre and then four years later the term “digital currency” surfaced in official documents, hinting that all lights are green on the Chinese cryptocurrency. If all goes according to plan, China is likely to be the first country to roll out a CBDC, or DCEP / Digital Yuan in this case. This creates both a benchmark for other countries and a boost to the world of cryptocurrencies as the concept and adapted technology becomes more widespread. Stay tuned to our Oobit blog to stay up to speed in this exciting development.