- China has published its long-awaited digital yuan whitepaper, revealing some of the features the CBDC will have, such as smart contract programmability.
- The PBoC revealed that it has processed over $5 billion in e-CNY transactions in its pilot phases, but it didn’t reveal when the official launch would be.
China has finally released its long-awaited digital yuan whitepaper, revealing, for the first time, the features of the vastly advanced central bank digital currency. The People’s Bank of China, in the whitepaper, also outlined some of the targets it has set for the CBDC, including financial inclusion and cross-border transfers. It also revealed that in the pilot phases that started last year, it has processed over $5 billion in digital yuan transactions.
China has established itself as the undisputed leader in the CBDC arms race. And while some countries like the Bahamas have already launched their CBDCs, China is the first major economy that seems to be edging closer to a digital currency. And now, for the first time, the world is able to dig deeper into the CBDC, also known as the digital renminbi, or e-CNY.
China started developing the CBDC in 2014, partly motivated by the rise of Bitcoin, which the PBoC describes as “claiming to be decentralized and entirely anonymous.”
However, given their [cryptos]lack of intrinsic value, acute price fluctuations, low trading efficiencies and huge energy consumption, they can hardly serve as currencies used in daily economic activities. In addition, cryptocurrencies are mostly speculative instruments, and therefore pose potential risks to financial security and social stability.
The PBoC isn’t a big fan of stablecoins either, predictably so. It believes that these stablecoins will “bring risks and challenges to the international monetary system, payment and clearing system, monetary policies, cross-border capital flow management and etc.”
Digital yuan features and functions
The e-CNY will be issued by the PBoC exclusively, the whitepaper reveals, with commercial banks being charged with distribution.
Digital yuan’s biggest feature is perhaps its smart contract functionality. There has been speculation for years that the e-CNY would be programmable, but this is the first time that the PBoC has officially confirmed it.
The whitepaper states:
E-CNY obtains programmability from deploying smart contracts that don’t impair its monetary functions. Under the premise of security and compliance, this feature enables self-executing payments according to predefined conditions or terms agreed between two sides, so as to facilitate business model innovation.
The digital currency comes with features such as a digital certificate system and encrypted storage to “make double-spending, illegal duplication and counterfeit, transaction falsification, and repudiation unfeasible.”
China is looking to promote financial inclusion through the CBDC. It further believes that the e-CNY will give the Chinese public an alternative digital payments system at a time when cash usage is dwindling rapidly.
Promoting fair competition and interoperability between different forms of digital payments is yet another target for the CBDC. In China, mobile payments take up a dominant chunk of payments, with AliPay and WeChat Pay being the two market giants. Whether the e-CNY will be a threat to the two is not yet clear.
As PBoC releases its whitepaper, one economist has dismissed the claim that the e-CNY is a threat to the U.S dollar’s state as a reserve currency. Eswar Prasad, a professor at Cornell University told Fortune:
The e-CNY is going to play a marginal role in increasing the renminbi’s prominence in international finance.
He added, “What really matters for a reserve currency is a country’s economic size and the depth and liquidity of its financial markets. It needs an institutional framework that wins the confidence of foreign investors, including an independent central bank, the rule of law, and institutionalized checks and balances among various arms of the government. Most of the existing reserve currencies have those attributes. China is showing no indication of moving in that direction.”