“Digital Currency Electronic Payment” (DCEP or CBDC), is the national digital currency of China built with Blockchain and Cryptographic technology. So, this cryptocurrency is unlike any before it, DCEP is pegged 1:1 with the Chinese national currency “RMB” and is NOT for speculation. Therefore the key objective is to make the RMB more universally accessible and cater to the currently unbanked demographics that are part of China’s Belt & Road Initiative. This is in part with China’s overarching goal to elevate RMB to a status that would compete with the USD.
China has been adamant about the nation’s push for adopting Blockchain technology with the goal of beating competitors like Facebook’s Libra. However, China has been explicit in stating that Libra is a threat to China’s sovereignty, insisting that digital currencies should only be issued by banks and governments. DCEP is not listed on cryptocurrency exchanges and will not be available for speculation of value.
China put a blanket ban on ICOs in 2017 and then on cryptocurrency exchanges in 2019. So this means that DCEP will be the only legal digital currency in China. Unlike stable coins such as Tether’s cryptocurrency “CNHT” which is also pegged to the RMB in a 1:1 ratio, DCEP is not a 3rd party stablecoin. Yet rather a government backed digital currency, effectively the RMB digitized.
The Chairman of the China International Economic Exchange Center Huang Qifan, said that after at least five years of work on China’s new digital currency, and they are ready to deploy the technology in the Chinese economy. The People’s Bank of China is issuing the digital currency as the government’s strategic partner.
It’s no surprise that China is pushing this technology. With predecessors like WeChatPay and Alipay which both received support from the Chinese government. However, the underlying objective being to provide the PRC as much visibility of each individual’s transactions as possible. So they can have references for the provision of money and the implementation of monetary policies.
China has been clear in their rhetoric towards cryptocurrencies and speculation for DCEP. That being, in their belief, only Governments and banks should have the right to issue cryptocurrency. Furthermore DCEP should be viewed as an exact 1-to-1 pair for RMB, and is not suitable or intended for speculation.
DCEP is a centralized and sovereign currency. It is not possible to mine or stake this digital currency on the network.
DCEP will initially be distributed to all commercial banks affiliated with the Chinese Central Bank. Including ICBC and Agricultural Bank of China. The deployment will be similar to that of physical Yuan. In other words DCEP is intended to replace the Monetary Reserve System, reducing costs and friction caused by bank transfers. So when looking at dated systems like SWIFT which is slow and inefficient, the value of the system becomes clear.
The initial launch will effectively serve as an official production test for the current system. In which the network and security will be validated. In the second phase of the rollout, DCEP will be distributed to large fintech companies such as Tencent and Alibaba to be used in WeChatPay and Alipay.
China will test launch DCEP in multiple Chinese cities. Including Shenzhen, Chengdu, Xiong’an and Suzhou. China has bet a lot on this, blockchain, and intends to win the digital currency race.
The central government has obliged all merchants who accept digital payments (Apple Pay, Alipay, and WeChatPay) to also accept DCEP as legal tender. This move insures the rapid adoption of their digital currency nationally immediately after deployment. The consequences for not accepting it will be dire as businesses can have their licenses revoked. In summary DCEP will likely be the most used digital currency in the world after launching.
Huawei is one of the most widely used phones in China. Their ties with the Chinese government have and recent news sheds light on the significance of the role they play in DCEPs deployment. So we recently saw leaked images of Huawei’s new UI which allows the withdrawal of their digital currency from Chinese merchant banks. Other digital payment platforms also just leaked images of their digital wallets. Including ABC Wallet, Alipay, and Bank of China Mobile Banking.
According to Blockchain.news DCEP will be issued by China’s four state owned banks: Agricultural Bank of China, Industrial and Commercial Bank of China, Bank of China, and China Construction Bank.
Additionally, 3 major telecommunications companies will assist its deployment: China Mobile, China Telecom, and China Unicorn.
The first major applications of DCEP include transportation, education, medical services, retail, among other major transaction oriented industries.
With the news of progress with Huawei and DCEP in Shenzhen recently, it’s clear China is trying to streamline the rollout.
According to CHAIN NEWS (互链脉搏), DCEP (or CBDC) is also being tested with multiple businesses in Xiong’An as seen in the list below:
Jin Feng Catering
Jian Kun Group
Qingfeng Bun Shop
China Shipping SPV
CITIC Press Group
On August 12th 2020, Beijing announced that it will introduce the initial testing for its Digital Currency Electronic Payment (DCEP) in the Greater Bay Area region. The Greater Bay Area consists of nine major cities consisting of Guangzhou, Shenzhen, Macau, Hong Kong, and others. So the Greater Bay area is a major financial and tech hub in Asia that has a combined population of 70 million residents generating a whopping $1.5 trillion GDP. Furthermore, cryptos are already widely used in the region making it a perfect testing ground for China’s new currency.
China has been scrambling to become the first country to launch its own digital currency. With the recent Security Law being enacted in Hong Kong, China has even more accessibility to Hong Kong’s international financial hub. Hong Kong is one of the most open and global cities in the Greater Bay Area, this opportunity will allow China to promote its digital currency on a global stage.
With cryptocurrency already widely popular in Hong Kong, it will be interesting to see how DCEP may try to maneuver with several of its competitors in the space. As mentioned above, the Chinese government has “obliged” all merchants to accept DCEP, so this may create problems for those waiting to utilize other crypto currencies. Furthermore, since DCEP will be available to all users, it will most likely be a way for the government to track individual spending and transactions. This definitely alerts concerns for privacy and anonymity, but it will be a question of time to see how it all works out.
According to the Official Sina Blockchain account, DCEP will have NFC based payment options that don’t require devices to be connected to the internet during transfers. Again, this goes back to China’s underlying objective to replace paper money. Furthermore, DCEP caters to the unbanked population as it doesn’t need to be pegged to a bank account.
China has pushed the country across the board to develop and implement Blockchain Technology to drive efficiency, innovation, and become a world leader in Blockchain technology. Xi JinPing has mandated that the country’s development of Blockchain Technology should be “Sped Up”. This space also echoed Lie Wei the head of the people’s Bank of Chinas speech. China has adopted the “Blockchain, not cryptocurrency”. Whereby the benefits of Blockchain technology is highlighted. On the other hand, cryptocurrencies that are native to blockchain technology are suppressed as Cryptocurrencies and ICOs receive a blanket ban in the country
DCEP is a crypto currency that is run on a centralized private network (unlike every other cryptocurrency). The Central Bank of China has complete access and control of the currency. The concept of DCEP is a stark contrast to existing cryptocurrencies like Bitcoin, which has an open and decentralized network. Whereas in the case of DCEP, the Central bank of China has the ability to create or destroy DCEP at will.
Hours after DCEP was announced, various Chinese exchanges listed IOUs or knock-off clones of DCEP. This was accomplished by using parties outside of the Chinese listed partners (scammers). It is encouraged that all users of DCEP wait for the official launch of the currency before trading. Unfortunately countless people have already fallen victim to such ploys.
As of writing this article, DCEP is only available to other banks working with the People’s Bank of China.
This will eventually open up to the general public in 2020. Currently there are no exchanges that trade in DCEP.
China has clearly stated it wants the RMB to replace the USD as a reserve currency. That being said, China’s new digital RMB could be viewed as an economic weapon to help them accomplish this. When looking at China’s belt and road initiative, the practical application of this new digital currency becomes clear. Because there are a great number of unbanked individuals in the Belt and Roads ecosystem. DCEP could prove to replace cash transactions throughout the Belt and Road.
Furthermore, DCEP gives China the ability to freeze and seize the currency as they see fit. That means a user could have the funds in their digital wallet tracked and frozen if need be. We have already seen China implement a similar punitive system with their “social credit system”. We will have to see how this plays out, there could be a massive backlash if China acts similarly with non-Chinese users.
There have been a number of images leaked recently showing the DCEP system in various digital wallets. According to some netizens that obtained screenshots from the closed beta test, DCEP wallets will support major functions such as: digital asset exchange, wallet management, and transaction histories. Additionally, users will be able to pay via QR codes (similar to WeChatPay), remittances, and mobile payments.
Despite the fact that China has stated they do not want DCEP to be viewed as a Cryptocurrency. There are many cryptocurrency companies that are devising plans to create DCEP onramps to Bitcoin and cryptocurrencies. Although we can only speculate on how things play out, it is worth noting that the similarities between DCEP and Cryptocurrencies make them seemingly compatible. We’ll be keeping a close eye on the situation and be updating you on the situation as things develop.
China’s CBDC wants to displace the U.S. dollar, but Genesis Block’s Charles Yang believes it doesn’t offer a compelling alternative to USDT.
“Any country that has these capital constraints — Korea is a big one, China’s obviously another major one — [where] people just can’t go through regular banking channels to send money to a different country. […] This is the major use case of crypto right now.”
“For instance, if China launches DCEP on their blockchain, and they want other countries to accept it, these new countries need access to that data.”
Whether China’s central bank would be willing to share that data with other countries remains an open question.
“It’s just a means of moving value. That’s the most practical way to view it: ‘If you accept it, how quickly and how reliably you can offload it without a great sacrifice?’”
DCEP definitely is a solution for a very real problem: the 1.7 billion unbanked people in the world. As far as the repercussions of DCEP for Bitcoin and Cryptocurrencies, this is still yet to be known. We can infer that the more mainstream digital currencies become the better it is for the market as a whole. However, because of China’s strict view of Bitcoin and other current cryptocurrencies, this has the possibility of swinging towards a detrimental effect. So we’ll be keeping a close eye as things develop.
We’d like to attribute credit for researching this article to Michael @Boxmining, below is a great video he put together covering the subject:
Subscribe to our mailing list and follow us to stay in the know!