Much attention has been paid to the global and geopolitical impact of China’s rapid and groundbreaking development of its digital yuan, also known tentatively as e-CNY.
In a new white paper published by the E-CNY Research and Development Working Group of the People’s Bank of China (PBoC), the institution provided a more country and technology oriented vision of the background and key objectives of the new currency.
Overview of the timeline of coin research and development, the document notes that the PBoC first set up a working group to study fiat digital currency in 2014. By 2016 it had founded a Digital Currency Institute, who developed the first generation prototype for the new currency.Â With the consent of the Council of State, At the end of 2017, the bank began working with commercial institutions to further develop and test e-CNY.
These years coincided in particular with the strong growth of the decentralized cryptocurrency markets and their first big bull run in winter 2017 together with major changes in the national and international digital economy.
Big data, cloud computing, artificial intelligence, blockchain and the Internet of Things are the main innovations highlighted in the white paper, and the bank found that the COVID-19 pandemic has significantly accelerated the digital transformation of Chinese businesses and payment services.
The PBoC builds on many of these developments for the e-CNY, including the use of smart contracts to enable scheduling, as the new document shows for the first time.
While the institute sees technological change and far-reaching innovations in retail payment services as positive, his characterization of decentralized cryptocurrencies is devastating:
“Cryptocurrencies such as Bitcoin are claimed to be decentralized and completely anonymous, but due to their intrinsic worthlessness, strong price fluctuations, low trading efficiency and massive power consumption, they can hardly serve as a currency in everyday economic life. In addition, cryptocurrencies are mostly speculative instruments and therefore pose potential risks for financial security and social stability. “
Likewise, The PBoC notes that concerns about price volatility have led some private players to launch stablecoins pegged to fiat currencies or other assets. Plans to introduce a global stablecoin by commercial institutions, according to the PBoC, “They will pose risks and challenges for the international monetary system, the payment and compensation system, monetary policy, the management of cross-border capital flows, and so on.”
In this context, Beijing’s penchant for government-driven innovations in retail payment infrastructure and the creation of a two-tier centralized management model for e-CNY is to be expected:
“The right to issue the e-CNY rests with the state. The PBOC is at the heart of the e-CNY operating system. It issues the e-CNY to authorized operators who are commercial banks and manages it throughout its term In the meantime, it is the authorized operators and other commercial institutions who exchange the e-CNY and distribute it to the public. “
In its strictly technical design, however the currency integrates centralized and distributed architecturesThis has been used with great success in several studies, So far implemented in more than 1.32 million scenarios and with a total transaction volume of 70.75 million with a total value of around 34.5 billion renminbi (5.34 billion US dollars).
The whitepaper also takes into account the growing interest of central banks around the world in the development of digital central bank currencies., and notes that the PBoC was involved in extensive consultations with international organizations such as the Bank for International Settlements, the International Monetary Fund and the World Bank. Take a cautious stance towards using e-CNY across borders, emphasizing “various complicated issues such as monetary sovereignty, exchange rate policy […] as well as regulatory and compliance requirements “.
Since the e-CNY is now technically ready for cross-border use, the PBoC said so anyway Actively respond to initiatives by the G20 and other organizations and explore potential cross-border payments pilot projects, â ???? which previously depended on mutual respect for monetary sovereignty and compliance “.