China accelerates push for digital yuan following Shenzhen trial
Beijing plans new features and legal change toward launch by 2022 Olympics
/NOVOSTIVL/ From real-life trials to a proposed legal change, China has ramped up preparations for issuing a new digital currency ahead of the world's other big economies.
According to Xinhua, a state mouthpiece, a total of 10 million RMB was distributed to 50,000 citizens who can spend the funds from October 12-24 across the city. Some 3000 merchants participated in the trial run by upgrading their payment system to accept DCEP. So far, so good: local media reported that some users deposited additional funds into their DCEP wallets after spending the 200 RMB.
Many users reported back to Xinhua that the DCEP wallet user experiences resemble those of Alipay and WechatPay, but without the friction of linking one’s bank accounts.
The People's Bank of China will be testing the digital yuan in 28 cities, including major metropolitan areas such as Beijing, Tianjin, Shanghai, Guangzhou and Chongqing, and is working on new features like easy transfers and better security. But the developments have raised alarms in the U.S., Europe and Japan that Beijing could become the dominant force behind the technologies and frameworks involved in digital currencies.
"We will create a standardized wallet," Mu Changchun, head of the digital currency research unit under the People's Bank of China, said at an event Sunday in Shanghai.
To prevent counterfeits, the PBOC appears to be planning universal standards for digital wallets so they only accept legitimate currency.
The Chinese central bank aims to launch the digital yuan before the 2022 Winter Olympics in Beijing. At a test in Shenzhen from Oct. 12 to 18, 47,573 participants spent over 8.76 million yuan ($1.31 million) of the digital currency.
"We will unveil new functionalities outside of payments in our future trials," Mu said on Thursday.
One example he gave is transferring money by placing two smartphones close to each other, intended to feel as easy as exchanging cash. "We have already developed this capability," Mu said.
The PBOC is also working with ride-hailing services such as Didi Chuxing, with plans to make the digital yuan available for online transactions in upcoming trials.
In the Shenzhen trial, the PBOC used cellphone numbers to track the currency from user to user. But the bank wants to give users access to the digital yuan even without a phone number or bank account information when it formally launches, likely so foreign visitors can also use the currency. Many are keeping a close eye on what other tracking methods the PBOC tries out in future tests.
China is also pulling ahead in terms of the legal framework surrounding a digital currency. While the U.S., European Union and Japan have yet to commit to issuing digital currencies, the PBOC on Friday published draft legislation to turn the digital yuan into legal tender. The draft would also ban the private sector from issuing cryptocurrencies. There is concern that digital currencies could destabilize the existing financial system and undermine monetary policy.
It's not strictly blockchain
The most important “clarification” from Xinhua was to highlight the notion that Digital Currency Electronic Payment (DCEP) isn’t strictly a blockchain thing, a fact commonly known in the western world but rarely discussed from any state media. In fact, up to this point, most of the DCEP narrative has been centered on its use of blockchain, as blockchain itself has been identified as China’s new technology infrastructure.
It seems a little weird then, since China is currently winning the race to be the first major economy to issue a state-backed digital currency, to lose the blockchain narrative. So why abandon it?
One explanation could be that given how volatile the cryptocurrency world is, China wants to take a conservative stance and draw a sharp line between its official state-backed currency and the magic Internet money that has a reputation for being so rife with speculation, money laundering, and fraud. This seems especially prudent given many Ponzi schemes, such as Plus Token, which continue to use DCEP as a way to attract new victims.
If blockchain is what people associate crypto with, then DCEP needs to maintain some distance.