With the coronavirus pandemic continuing to wreak economic havoc around the world, China’s commitment to launching its much-touted digital yuan project known as Digital Currency Electronic Payment (DCEP) as soon as possible has remained impressively strong.. In this regard It appears that the Chinese authorities will be introducing the digital currency for testing across the Hong Kong Bay area in the next few weeks.
In addition, on August 5, it was revealed that a select group of China’s state-owned commercial banks had carried out internal tests on an industrial-scale digital currency wallet specially designed for the aforementioned digital currency. According to reports, banks are testing the wallet to enable large money transfers with digital currency from the Chinese central bank in addition to everyday payments.
When it comes to crypto regulation, China has traditionally taken an extremely tough approach. However, In developing its national digital currency, the power plant of the East has remained true to its original vision and has even launched a number of pilot programs in large cities.
The initial scope of the DCEP is not yet certain
Over the past few months, various reports have touted how the latest offer by the People’s Bank of China, PBoC, could possibly signal the end of the current dominance of the US dollar market.as well as the disruption of the global payments market. For starters, DCEP poses a threat to the dominance of the widespread cross-border SWIFT transaction system, especially given its time inefficiency compared to near-instantaneous crypto transactions.
However, it is still largely unclear how blockchain technology will affect the use of the digital yuan. This has been confirmed by Yifan He, CEO of Red Date Technology, the architecture firm behind the Chinese Blockchain Service Network (BSN) project. Talk to Cointelegraph He said that currently neither he nor BSN staff are clear about the role of blockchain technology in the national project, adding:
“There are two layers: a central bank layer and a commercial bank layer. The central bank layer is definitely a central system. Some commercial banks could use blockchain technology to settle and circulate the digital yuan, but it’s unclear how far it goes. I would take over the blockchain as soon as the DCEP goes live. “
He also believed that the DCEP will have very limited scope in its early stages of deployment, most likely at the person-to-dealer and / or person-to-person level. Then, If that were the case, especially from an end-user perspective, the general utility of the digital yuan would be no different from other available platforms like WeChat Pay or Alipay::
“The DCEP will not have a visible impact on the local economy until business-to-business and business-to-person transactions take place. However, this implementation will bring a lot of changes such as taxes and bank accounts. I don’t think we’re seeing that become.” let that happen in a short time. “
Only niche tests are carried out
As already mentioned, lLocal Chinese media have reported that DCEP is currently being used for extensive testing across the Hong Kong Bay area. In addition, a pilot program for the digital yuan is being launched in other key areas of the country.
The scope of the Yuan digital testing is believed to extend to many of China’s wealthiest regions, such as the capital Beijing and nearby Tianjin and Hebei provinces in the north. the delta of the Yangtze in the south;; and along the rich south coast of China, the province of Guangdong and the neighboring cities of Hong Kong and Macau.
However, on this issue, he believes that DCEP is only being tested in four cities in China and that those locations do not include Hong Kong and Macau: “If anyone is testing the DCEP in these locations, it must be from Shenzhen. Some banks are testing business processes in Hong Kong and Macau as many merchants have bank accounts in China and are already accepting RMB“.
The benefits and privacy of the digital yuan
The Chinese government does not uphold the anonymity aspect of cryptocurrencies and therefore The digital yuan will not be able to offer many of the same anonymity and privacy features that Bitcoin and other altcoins currently have. However, Chinese central bankers have vowed to protect user privacy, stating that the main purpose of the DCEP is to replace some of the Chinese monetary base or the already rare cash that is in circulation.
In fact, PBoC governor Yi Gang stated last year that the digital yuan was not an attempt to replace parts of the country’s money supply, such as bank deposits and balances from private payment platforms. Speaking of the usefulness of DCEP in the real world, especially from a cross-border transaction perspective, a source close to the matter that wanted to remain anonymous, commented Cointelegraph:
“Since the RMB cannot be freely exchanged in the world’s foreign exchange markets, it does not make sense to consider the impact of the digital yuan internationally, especially when it comes to transactions between individuals. If a trader from outside of China accepts the digital Yuan, you need to have accounts (wallet and bank account) with a specific Chinese commercial bank, and they can only convert them back to RMB and then convert RMB to local currency through the local branch of the Chinese bank. “
However, the source added that in business-to-business transactions The development will have some advantages for international companies doing business with Chinese companies directly.
As the Chinese authorities continue to bend the narrative that the DCEP is merely a way for the authorities to combat criminal activity such as money laundering.The digital yuan will not only help the PBoC control the flow of physical money, it will also clearly compete with various local digital payment systems such as Alipay and WeChat Pay.
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Additionally, it should be noted that China is currently one of the few countries testing the effectiveness and overall feasibility of a CDBC. Other nations running similar projects are Ukraine, Sweden, Uruguay, the Bahamas, and South Korea. To the last, According to reports, the Chinese government has clear plans to test its digital offering during the 2022 Beijing Winter Olympics. However, details are currently extremely limited.