The People’s Bank of China is poised to become the first major central bank to issue a digital version of its currency, the yuan, seeking to keep up with -- and control of -- a rapidly digitizing economy. PBoC’s official website, the word “Bitcoin” is not mentioned even once, although China is one of the top players in the crypto industry. The principles and technologies on the basis of which it is planned to create a state digital currency are also not explained. Unlike cryptocurrencies such as Bitcoin, though, dealing in the digital yuan won’t have any presumption of total anonymity, and its value will be as stable as the physical yuan.
The People’s Bank of China (PBoC) has spoken about its commitment towards creating a digital version of the yuan.
According to the People’s Bank of China’s (PBoC) deputy director Mu Changchun, head of the institution’s digital currency research institute, it will provide no scope for speculating on its value and it will not have the backing of a basket of currencies.
Mu recently said that China’s new national digital currency would operate on a two-tier system, with the PBoC on top, and commercial banks allowed on the second tier of the centralized system.
Mu made it clear that China is not launching a war on cash by introducing its own digital currency. Rather, Beijing intends for the new currency to complement the paper yuan.
In 2013 China invoked a prohibition of financial institutions from handling bitcoin transactions.
In 2014 China creates a special group for cryptocurrency research.
In 2015 China begins active studying of cryptocurrency-related regulatory experience from other countries.
In 2016 China first official announcement that it will create a national cryptocurrency.
In 2017 China creates a research institute setup to further facilitate the development of its national cryptocurrency. They also ban local cryptocurrency exchanges.
In 2019 PBoC moves forward with the creation of its national cryptocurrency on the heels of Libra, currency wars, trading disagreements with U.S. sanctions.
In 2020 - March The Bank of China was alleged to have completed the development of the currency’s basic functions and to have already moved on to drafting laws for its implementation. Screenshots of a purported pilot version of a wallet app for China’s forthcoming digital yuan are circulating on social media. According to Ling Zhang, the app is available for download in four cities selected for the initial trial — Shenzhen, Chengdu, Suzhou and Xiongan. She highlights the inclusion of Xiongan, a new metropolis located on the outskirts of Beijing, which has been the site of a so-dubbed “smart city brain project.” The Xiongan New Area will have enhanced intelligent infrastructure that spans satellite information services, sensor recognition, a 5G network, super-computing and big data facilities. The city has already attracted the country's tech giants Tencent, Alibaba, JD.com and Baidu, with President Xi Jinping visiting on more than one occasion. PBoC digital currency is likely to be tested in these four regions that these locations were likely chosen because they are considered “tier 1 or 2” cities and “are home to tech talent,” especially Shenzhen, deemed the Silicon Valley of China.
BIS Bulletins are written by staff members of the Bank for International Settlements, and from time to time by other economists, and are published by the Bank. The papers are on subjects of topical interest and are technical in character. The views expressed in them are those of their authors and not necessarily the views of the BIS.
In 2020 - April China appears to have been accelerating the development of the digital yuan, according to the BIS Bulletin (shown above) notwithstanding the COVID-19 crisis. China is reportedly working with private industry to accelerate the roll-out of its central bank-backed digital currency. According to several international reports several Chinese tech giants, including Alibaba, Tencent and Huawei, as well as China Merchants Bank, have been working with the People’s Bank of China (PBoC) to issue an official digital yuan.
Insiders tell the Global Times that Alipay, the financial arm of Chinese e-commerce and cloud computing giant Alibaba, has filed five patents from January through March that are linked to the development of China’s digital yuan. Most transactions in China are already conducted digitally using WeChat pay or Alipay.
Insiders say that the central bank is now drafting legislation for the roll-out following several patents covering a spate of technological challenges, including issuance, anonymous trading support, anti-money laundering, transaction history and digital wallets that will be used to store the currency.
The PBoC has not yet issued an exact launch date for its digital yuan.
In 2020 - May According to the official letter obtained by the reporter of Science and Technology Board Daily, Suzhou Xiangcheng District will be an important pilot area for the Digital Yuan. They are cooperating with the central bank and the four state-owned banks of China Construction Industry and Agriculture to promote the pilot work of its digital currency. The official letter requires that the enterprises and institutions and various management committees in each district of Xiangcheng District sign a digital currency distribution agreement with the wage distribution bank, install a digital wallet for all staff (except retirees), and include transportation subsidies in the monthly salary. The signing of this issuance agreement, and the installation of digital wallets will need to be complete by the end of May, and the completion of the issuance will occur in June. 50% will be issued through Digital Yuan. The dates for the tests or the actual launch have not been confirmed by the PBoC yet but there are chances it might occur during the Winter Olympics of 2022. China has reiterated that the blockchain tests will not have any impact on mainstream markets either.
In July of 2019, Wang Xin, director of the PBoC Research Bureau, said that, with the development of the Libra cryptocurrency project, the People’s Bank of China should accelerate the growth of its own digital currency, which it has been working on over the past few years.
“If [Libra] is widely used for payments — cross-border payments in particular — would it be able to function like money and accordingly have a large influence on monetary policy, financial stability, and the international monetary system?”
In particular, China is concerned about which currencies Libra will be tied to and what role the U.S. dollar will play in this project. Wang said:
“If the digital currency is closely associated with the US dollar, it could create a scenario under which sovereign currencies would coexist with US dollar-centric digital currencies. But there would be in essence one boss, that is the US dollar and the United States. If so, it would bring a series of economic, financial and even international political consequences.”
According to Chinese authorities they need to strengthen the national currency and consider the Hong Kong model to create a digital renminbi, which involves issuing money through commercial enterprises under the supervision of the central bank.
As the virus has spread and citizens have been placed under lock down, paper notes have followed. Banknotes have been disinfected with ultraviolet light and high-temperature ovens in China, and placed in a 14 day quarantine period in places as far afield as Hungary and the U.S. If this trend continues and prompts widespread distaste for physical cash, the credit card industry is likely to benefit, along with payment firms like PayPal, and card-issuing banks. On the other hand, if authorities recognize the opportunity to seize tighter control over the economy, governments could be galvanized into releasing their own central bank digital currencies. This would enable a new era of economic experimentation as governments tighten the reins around currency more than ever before to drive through unpopular economic measures like quantitative easing and negative interest rates.
The Master Plan for China
The digital yuan can disrupt both traditional banking and the post-Bretton Woods system of floating exchange rates that the world has lived with since 1973. No wonder that for China, “blockchain and the yuan digital currency are a national strategic priority — almost at the level of the internet. It’s no coincidence that China hastened its national cryptocurrency after Facebook Inc. announced the Libra project, which was touted as an alternative dollar.
An inflection point for Bitcoin…will coincide with the release of the Digital Yuan.
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