China has been discussing the potential of the national digital currency for half a century, and the Chinese digital yuan project, known as digital currency electronic payments or DCEP, has a long history. In 2014, the People’s Bank of China set up a research group to “study digital currencies and application scenarios”. The research team conducted a survey on cryptocurrencies and allegedly considered issuing their own digital currency. In 2016, PBoC announced plans to develop its own digital currency and began hiring blockchain experts. In the same year, the Chinese prime minister included blockchain technology in his thirteenth five-year plan.
In 2017, PBoC launched the Cryptocurrency Research Institute, which is dedicated to the development and research of digital currencies. According to the National Intangible Property Administration of China (formally known as the State’s Intangible Property Administration), in its first year alone, the institute filed more than 63 patent applications related to blockchain and cryptocurrency. In 2018, a report by the China Institute of International Finance, which operates under the People’s Bank of China, indicated that the central bank would take regulatory measures on all kinds of digital currencies.
In July 2019, Wang Xin, director of the research agency PBoC, stated that Facebook’s plan to launch its stacked coin (now known as DEEM) influenced China’s plans to launch a digital model of the Chinese yuan. At the time, some experts predicted the launch of the Chinese government-backed digital currency ahead of the official launch of Libra.
Related: The Chinese central bank is developing its own digital currency in response to Libra
The DCEP project has made great progress in the past year; Meanwhile, project details remained limited. While the question of whether the first to launch a central bank digital currency will be sufficient to achieve global reserve currency status remains open, it is clear that China is moving towards taxing the digital economy.
Related topics: China’s central bank digital currency focused on domestic dominance, not overcoming the dollar
Only this year, China began testing the infrastructure for the digital yuan before it was officially launched, and the Chinese city of Shenzhen gave citizens the opportunity to participate in a lottery aimed at encouraging the introduction of the country’s new central bank digital currency. Also this year, China completed the development of hardware wallets for the digital yuan project; The first was produced by the Xungang Branch of the China Agricultural Bank in Hebei, and the second by the China Postal Savings Bank. And earlier in March, the Bank of Communications and the China Construction Bank conducted digital yuan tests at two major Shanghai stores.
The digital yuan against the cryptocurrency
Experts are extremely concerned that the Chinese digital currency is unlikely to be a cryptocurrency. As Bloomberg confirmed in 2019: “NBK will of course support the digital yuan, making it the opposite of decentralization.” The new digital currency in China is likely to be a central digital currency rather than a true cryptocurrency. As Shao Fujun, chairman of China UnionPay and a former official at the National Bank of Kuwait, said in August 2019, the government digital currency in China will have many positive effects, including tracking cash flows in economic activity and supporting monetary policy.
Mu Changchun, deputy director of the payments division of the Chinese central bank, said in 2019 that the upcoming digital yuan will strike a balance between facilitating anonymous payments and preventing money laundering. He reiterated his statement earlier this month, stating that a completely anonymous central bank digital currency is not feasible because the national digital currency must meet requirements related to money laundering, counterterrorism and tax evasion. Meanwhile, Chinese authorities are preparing to maximize the ease of use of the country’s central bank digital currency, according to a recent statement by Mouse.
The question of whether PBoC will be the same as a decentralized blockchain-based cryptocurrency, or whether it will give Beijing more control over its financial system, is an important question. However, the development of the digital yuan has undoubtedly influenced the development of the digital economy within and outside China. Cointelegraph reached out to blockchain and crypto space experts from China for their opinions on the following questions: How has the development of the digital yuan affected the entire cryptocurrency and blockchain industry in China? Will the central bank of China digital currency remain centralized or gradually decentralize over time?
Zhang Jia, founder of Bytom and 8btc:
“The Chinese digital yuan was developed and launched by PBoC (the Central Bank of China). It has been building the main economic network of China for decades.