Businesses across China will be required by law to accept DCEP as payment. However, because the threat of regulation looms large, these private stablecoins are fraught with incredible risk. Your email address will not be published. While Facebook’s Libra and other digital currency firms have been receiving increasing attention, private firms are in fact unlikely to truly dominate the digital currency trade. The digital yuan would be a way to speed that process up. In doing so, the Chinese currency will provide a strong alternative institution to rival the current USD-dominated international payments system. China’s leadership in the digital currency revolution. A man counts 100 RMB notes with the Chinese flag in the background. Such action may be needed in the longer term if DCEP leads to an alternative international payments system vis-à-vis the current US-led system, which is a probable prospect. This is where the payments would be anonymous to some degree, but data analysis tools could help the central bank catch illegal activities. Digital securities are regulated financial instruments such as equities or bonds where the transaction and shareholder details are recorded on the blockchain ledger. By “digital currencies” we mean financial transactions that are recorded on blockchain ledger and held in digital wallets. China has already given away millions of dollars worth of the digital currency in real-world trials in a number of cities including Shenzhen, Chengdu and Suzhou. This will empower the previously unbanked to form a new group of consumers. Policy Report CHINA’S CENTRAL BANK DIGITAL CURRENCY IMPLICATIONS FOR ASEAN Dipinder S Randhawa December 2020. The commercial banks will be responsible for getting the currency into the hands of consumers. It's unclear at this point what kind of technical make up the digital yuan would have. Real world trials are already underway in the world's second-largest economy. have been receiving increasing attention, strong competitiveness in digital ecosystems. Jemma Xu is co-founder and general partner at RedBlock Capital, a digital investment firm with expertise in the US, Asia, and other major markets. After all, RMB, not DCEP, bears the credit of the Chinese government and is subject to the usual exchange rate risk. Fourth, DCEP’s development will catalyse fintech innovation, giving rise to hybrid products that draw on both traditional markets and digital currencies. That is one of the big drivers behind this," Yan Xiao, project lead for digital trade at the World Economic Forum, told CNBC. "The use of cash is decreasing. Deputy Director of the People’s Bank of China (PBOC), Mu Changchun, has previously publicly voiced opinions about Libra.Now he says the Chinese CBDC is ‘ready’ without giving any time scales. Businesses should prepare for DCEP’s rollout in two main ways. China was the first to invent paper currency and is now ready to launch its own digital currency. Further, DCEP trials are already being conducted around China to reimburse public sector employees’ travel costs. Second, businesses may need to explore interoperability options when conducting cross-border trade. And China’s multi-trillion dollar Belt and Road Initiative (BRI) offers a network to extend DCEP in countries around the globe. It will be legal tender in China and no interest will be paid on it. China to Focus on Domestic Use for Digital Currency, Says Former Central Bank Governor - BeInCrypto Meanwhile, firms who timely prepare for China’s DCEP rollout can seize several significant opportunities. The People's Bank of China (PBOC) has been spearheading work on the digital yuan, a so-called central bank digital currency (CBDC) that aims to replace some of … Sheldon Cooper | SOPA Images | LightRocket via Getty Images, Why central banks want to launch digital currencies, allowed customers to purchase items with the digital yuan, Bitcoin is also built on a technology known as blockchain, digital yuan could be used to increase surveillance on citizens, explore a digital currency cross-border payment project together. "The existing system is owned by private companies. The project is still shrouded in secrecy. In an article in state-backed publication Yicai Global, Fan said cash and coins are not easy to use, they're easy to counterfeit and because of their anonymity, could be used for illicit purposes. At this point, it's unclear how users might actually hold and spend digital yuan when it is rolled out nationwide. In other words, ‘payment is settlement’ with no need for separate clearing and settlement processes. The Digital Currency Electronic Payment (DCEP) or the digital yuan will speed up the process of digitizing cash and coin in China. Bitcoin is a so-called decentralized cryptocurrency. The digital yuan could increase competition in China's mobile payments market which is dominated by Ant Group's Alipay and Tencent's WeChat Pay. Here's how it works. The Chinese market is already very advanced in cashless payments. China’s central bank has given the green light for some commercial lenders to run trials of its digital currency, according to people familiar … Instead, sovereign digital currency – namely, the “Digital Currency Electronic Payments” (DCEP) system managed by the People’s Bank of China (PBoC), the country’s central bank — has taken the clear lead in this space. China’s Central Bank Digital Currency Will Offer Greatest Privacy Protection, Official Says By Peng Qinqin and Luo Meihan Mu Changchun, director of the People's Bank of China’s Digital Currency Research Institute, speaks at the China Development Forum 2021 on Saturday. Central Bank Digital Currency (CBDC) is the digital form of a country's fiat currency of that is regulated by the central bank more China's State Administration Of … Dozens of central banks have started looking at whether to issue digital currencies. The earlier wars were limited to which central bank would issue the first CBDC. While Facebook’s Libra and other digital currency firms have been receiving increasing attention, private firms are in fact unlikely to truly dominate the digital currency trade. "Those could be commercial banks or other payment companies.". China proposed a set of global rules for central bank digital currencies on Thursday, from how they can be used around the world to highly sensitive issues such as monitoring and information sharing. China’s central bank has developed its own centralized electronic money and plans to keep it under its control. Fan also argues that a digital yuan could help with financial stability through a system of "controllable anonymity." Countries around the world are racing to make a central bank digital currency (CBDC). Proponents of bitcoin also tout the anonymity of the digital currency. There … The DCEP is often referred to as the "digital yuan" as … Chinese president Xi Jinping’s recent public endorsement of blockchain technology has further sent the nation into a frenzy of digital encryption. The wallet referred to the Agricultural Bank of China (ABC), one of China’s big four state banks, which is known to be involved in piloting the digital Yuan, also referred to as DCEP (digital currency / electronic payment). DCEP adoption will allow governments to rapidly deploy “helicopter money” to the public without requiring bank accounts. Elsewhere in China, DCEP is already in the process of being piloted in the restaurant and hospitality sectors, with foreign multinationals such as McDonald’s, Starbucks, and Subway already signing up to participate. These reasons alone leave many businesses and consumers unwilling to use such currencies. Distribution will be conducted via a so-called two-tier system. But China’s digital currency is not a silver bullet. The People's Bank of China has been developing the digital yuan, a so-called central bank digital currency that aims to replace some of the cash in circulation. CHINA’S CENTRAL BANK DIGITAL CURRENCY IMPLICATIONS FOR ASEAN. Last month, the PBOC joined central banks from Thailand, United Arab Emirates and Hong Kong to explore a digital currency cross-border payment project together. China’s efforts to create a digital yuan are aimed at domestic use and its goal for internationalizing its currency is not to replace the dollar, a senior official from its central bank … We want to hear from you. As if Covid-19 and the trade war hasn’t done enough to upend global business between the US and China, yet another major transformation is afoot: the launch of China’s sovereign (i.e., central-bank offered) digital currency (CBDC). Contracts with third-party financial custodians can also be helpful. And that Alipay and WeChat Pay could have a section of their apps dedicated to digital yuan. Meanwhile, smartphone makers could also create digital yuan wallets for their devices. DCEP will serve as a reliable alternative underlying-asset in the future, stimulating the creation of more hybrid financial products. Got a confidential news tip? The basic challenge of setting up digital wallets and managing private digital keys also tend to turn people away from digital currencies. All Rights Reserved. The Central Bank Digital Currency (CBDC) wars are moving to the next stage. This could include services to allow consumers to exchange their coins and cash for digital yuan. "The way I see it is digital yuan is not direct competitor to Alipay or WeChat Pay but a new platform that allows other players to come in and compete with WeChat and Alipay," Trivium China's Bao said. China is a world leader in the development of a central bank digital currency (CBDC), with 200 million yuan (US$30.4 million) already distributed in pilot … First, and critically, because it is a sovereign digital currency, the PBoC is the only issuing party. Another reason is maybe create a new platform payments system that will increase efficiency.". Outside of China, digital currencies are taking the form of unregulated “stablecoins” offered by private companies. In only a few years, central bank digital currencies (CBDC) have gone from a fringe idea promoted by cryptocurrency bloggers to an idea now seriously explored by 80% of the world’s major central banks, including the People’s Bank of China and the United States Federal Reserve. Central Bank Digital Currency (CBDC) is the digital form of a country's fiat currency of that is regulated by the central bank Central bank digital currencies (CBDCs) are on their way. "To build a separate system would be a tremendous waste of such existing resources," he said. Yesterday a screenshot emerged showing an online wallet used in testing China’s central bank digital currency (CBDC). China’s central bank first set up a team to study digital currencies in 2014, and in 2017 China’s State Council issued an approval for the PBOC to begin designing the currency in cooperation with commercial banks. It is expected to give China’s … China will be looking to make use of their own digital currency domestically rather than globally according to former governor of the central bank, Zhou Xiaochuan. Global Business and Financial News, Stock Quotes, and Market Data and Analysis. The PBOC also established a Digital Currency Research Institute in 2017, which has led work on the development of DCEP. In this void, China’s DCEP offers the public confidence unobtainable by private digital currencies. © 2021 CNBC LLC. This site uses Akismet to reduce spam. To start, as of mid-2020, DCEP has been piloted in the Chinese cities of Shenzhen, Chengdu, Suzhou and Xiong’an – potentially reaching over 42 million people, more than Canada’s entire population. It could be based on a phone number, according to WEF's Xiao. China is one of the frontrunners in the global race to launch central bank digital currencies to modernise financial systems, ward off the … GUANGZHOU, China — Central banks from China, Thailand, United Arab Emirates and Hong Kong are exploring a digital currency cross-border payment project together. Get this delivered to your inbox, and more info about our products and services. First, as previously alluded to, the expansion of DCEP will facilitate the internationalisation of the yuan/renminbi. Eventually cash will be replaced by something in digital format. Fan Yifei, deputy governor of the PBOC, said last year that there is a "pressing need to digitalize cash and coin" as producing and storing these currently is expensive. In a separate article, Fan outlined how a CBDC could make payments more efficient and improve the transmission of monetary policy. The PBOC's Fan said the digital yuan would have "controllable anonymity." No. Dan Prud’homme is an associate professor at EMLV Business School in Paris, France and a research associate at Duke University’s Kunshan, China campus. DCEP will be used for purchases in all sectors across the country. Learn how your comment data is processed. Some commentators have raised concerns however that the digital yuan could be used to increase surveillance on citizens. That means the PBOC will distribute the digital yuan to commercial banks. Yet other pilot initiatives, such as a commitment to use DCEP at venues for large-scale upcoming events in Beijing, are in place. Second, by facilitating direct transactions between digital wallets, DCEP will eliminate sizeable banking clearing and settlements costs. Users can display this barcode in their Alipay or WeChat app in a store and the merchant will scan it. Although central banks in several other countries have also been studying digital currencies, none have taken the lead to actually develop and rollout a CBDC at the scale occurring in China. See related article: What does ‘universal basic income’ have to do with a digital dollar or a central bank digital currency? A former high-ranking Chinese official, Huang Qifan, announced in October that China may well be the first country to issue a digital sovereign currency. Another reason behind the PBOC's efforts could be to increase competition in the payments space and reduce systemic risk. To accept cookies, click continue. We use cookies on this site to understand how you use our content, and to give you the best browsing experience. On the upside, to facilitate swift legal compliance with DCEP – considering that its acceptance is being required by law in China – the Chinese authorities may integrate DCEP with popular existing digital wallets already widely used by many businesses in China, namely Alipay and Wechat Pay. Greater numbers of innovative structured products are appearing in the digital currencies market, where the underlying asset is a native digital currency, such as Bitcoin, but the payoffs are based on traditional structured products. The PBOC sees a number of other benefits to the digital yuan. China’s central bank digital currency, known as ‘DC/EP’ (Digital Currency / Electronic Payment), is rapidly progressing and, if successful, would have major international implications that have not yet been widely considered by policymakers. Its system follows a “two layer” approach. Third, DCEP will offer firms new ways of raising capital and secondary trading via the issuance of digital securities and disintermediated trading on exchanges. Chinese banking institutions have introduced central bank digital currency (CBDC) hardware prototypes for several different use cases. But a new report says China isn't actually the most advanced with developing one. Bitcoin is also built on a technology known as blockchain. On Saturday, it was revealed that China is almost ready to unveil its Central Bank Digital Currency (CBDC). Although privately-operated digital currencies are entering the market, sizeable regulatory, technical, and user hurdles continue to prevent their rapid and widespread adoption.