China’s central bank says crypto kicked off its CBDC

Much attention has been paid to the global geopolitical impact of China’s rapid and groundbreaking development of the digital yuan (e-CNY).

However, in a new white paper published by the E-CNY Research and Development Working Group of the People’s Bank of China (PBoC), the organization has outlined a more domestically-focused vision and technology focus of the platform and the main goals of the new coin .

Documenting the coin’s research and development plan, the article notes that the PBoC first established a task force to research digital fiat currencies in 2014. By 2016 she had founded the Digital Currency Institute, which developed the first generation prototype for the new currency. With the approval of the State Council, the bank began working with commercial institutions in late 2017 to develop and further test e-CNY.

In particular, those years coincided with the strong growth of the decentralized cryptocurrency market and its first bull run in winter 2017, along with significant changes in the technical economy.

Big data, cloud computing, artificial intelligence, blockchain and the Internet of Things are key innovations outlined in the white paper, and the bank notes that the Covid-19 pandemic has significantly accelerated the digital transformation of Chinese payment companies and services.

The PBoC is basing many of these developments on e-CNY, including the use of smart contracts to enable programmability, as the new paper shows for the first time.

While the organization is positive about technological change and far-reaching innovations for retail payment services, its character for decentralized cryptocurrencies is very strong.

“Cryptocurrency” like Bitcoin, which is claimed to be decentralized and completely anonymous. However, due to their lack of intrinsic value, strong price fluctuations, low trading efficiency and high energy consumption, they should not serve as a currency in everyday economic life. In addition, cryptocurrencies are primarily speculative and therefore harbor risks for financial security and social stability. “

In addition, the PBoC noted that concerns about price volatility have led some private companies to launch stablecoins that are pegged to fiat currencies or other assets. According to the PBoC, the plan to launch a global stablecoin through commercial institutions will “pose risks and challenges to the international monetary system, payment and clearing system, monetary policy, cross-border cash flow management, etc.”

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In this context, Beijing’s penchant for innovation in state-run retail payments infrastructure and the creation of a centralized, two-tier regulatory model for e-CNY will meet expectations:

“The right to issue CNY electronically belongs to the state. The PBOC is at the heart of the e-CNY operating system. It issues e-CNY to authorized operators who are commercial banks and manages the e-CNY throughout its life cycle. In the meantime, it is the authorized operators and other commercial organizations who are exchanging the e-CNY and making it public. “

However, in its strictly technical design, the currency integrates both centralized and distributed architectures. This has been to great effect in various tests conducted so far in over 1.32 million scenarios and with a total trading volume of 70.75 million with a total value of about 34 5.5 billion yuan ($ 5.34 billion) used.

The White Paper also examines the growing interest of central banks around the world in developing central bank digital currencies (CBDCs) and notes that the PBoC has held talks with the World Bank. Takes a cautious stance towards the use of e-CNY for cross-use and emphasizes “various complex issues such as currency sovereignty, foreign exchange policy” […] as well as regulatory and compliance requirements. “

With the e-CNY technically ready for cross-border use, the PBoC said it would actively respond to initiatives by the G20 and other institutions and examine possible pilot projects for cross-border payments, “the prerequisite for mutual respect for monetary sovereignty and” compliance. “