How the digital yuan stablecoin impacts crypto in China: Experts answer

This is an element considered one of a multipart collection on blockchain and crypto in China.

China has been discussing the prospects of nationwide digital forex for half a decade, and the Chinese digital yuan mission — known as the Digital Currency Electronic Payment, or DCEP — has years of historical past. Back in 2014, the People’s Bank of China set up a analysis group “to study digital currencies and application scenarios.” The analysis group was conducting a digital forex research and reportedly contemplating issuing its personal digital forex. In 2016, the PBoC announced plans to de­velop a digital cur­rency of its personal and started to rent blockchain specialists. The identical yr, Chi­na’s State Coun­cil included blockchain know-how in its 13th Five-Year Plan.

In 2017, the PBoC launched the Digital Currency Research Institute, which centered on the improvement and analysis of digital currencies. According to China’s National Intellectual Property Administration (formally often known as the State Intellectual Property Office), the institute filed greater than 63 patent functions associated to blockchain and crypto throughout its first yr of existence alone. In 2018, a report — launched by the Chinese Institute of International Finance, operated beneath the People’s Bank of China — indicated that the central financial institution would institute a regulatory crackdown on all forms of digital currencies.

Back in July 2019, Wang Xin, director of the PBoC’s analysis bureau, acknowledged that Facebook’s plan to launch its personal stablecoin, Libra (now often known as Diem), had influenced China’s plans to launch a digital type of the Chinese yuan. Back then, some experts predicted that the Chinese government-backed digital forex aimed to be rolled out sooner than the official launch of Libra.

Related: China’s central bank developing own digital currency in response to Libra

Last yr, the DCEP mission made significant progress; in the meantime, the details of the project remained limited. While the query of whether or not being the first in launching a CBDC will probably be sufficient to win global reserve currency status stays open, China is clearly transferring towards main the cost into the digital financial system.

Related: China’s CBDC is about domestic dominance, not beating the dollar

This yr alone, China began testing infrastructure for the digital yuan previous to its official launch and the Chinese metropolis of Shenzhen supplied an opportunity for its residents to participate in a lottery event that aimed to encourage the adoption of the nation’s new central financial institution digital forex. Also this yr, China accomplished the improvement of {hardware} wallets for the digital yuan mission; the first one was produced by the Xiong’an department of the Agricultural Bank of China in Hebei and the second by the Postal Savings Bank of China. And earlier in March, the Bank of Communications and China Construction Bank conducted digital yuan trials at two major department stores in Shanghai.

Digital yuan vs. cryptocurrency

A serious concern amongst specialists is that China’s CBDC is unlikely to be a cryptocurrency. As was underlined by Bloomberg in 2019: “The PBOC will, of course, back the digital yuan, making it the opposite of decentralized.” China’s new digital forex will most definitely be a centralized digital forex slightly than a real cryptocurrency. As Shao Fujun, chairman of China UnionPay and a former PBoC official, stated again in August 2019, China’s state-owned digital forex “will have lots of positive impacts, including tracking the money flow in economic activities and supporting making monetary policy.”

Mu Changchun, deputy director of the Chinese central financial institution’s funds division, said again in 2019 that the forthcoming digital yuan would strike the steadiness between facilitating nameless funds and stopping cash laundering. He repeated the assertion earlier this month, saying {that a} completely anonymous CBDC “is not feasible” as a result of a nationwide digital forex should meet necessities associated to Anti-Money Laundering, Counter-Terrorist Financing and anti-tax evasion. Meanwhile, Chinese authorities are prepared to make sure most consumer privateness for the nation’s central financial institution digital forex, in keeping with Mu’s current assertion.

The query of whether or not the PBoC’s forex will probably be like decentralized blockchain-based cryptocurrencies or if it would give Beijing extra management over its monetary system is a crucial one. Nonetheless, the improvement of the digital yuan has undoubtedly influenced the improvement of the digital financial system each inside and out of doors of China. Cointelegraph reached out to specialists in the blockchain and crypto house from China for his or her opinions on the following questions: How has the improvement of the digital yuan affected the whole crypto and blockchain business in China? Will the Chinese CBDC keep centralized or step by step grow to be decentralized over time?

Chang Jia, founding father of Bytom and 8btc:

“The Chinese digital yuan is designed and launched by the PBoC (China’s central bank). It is based on the construction of China’s basic financial network for decades, and it is endorsed by state credit. Therefore, its birth undoubtedly encourages China’s whole blockchain industry, especially those corporations that have been persisting in the underlying technology of blockchain, digital currency infrastructure construction, and industrial blockchain solutions for several years to see their future use, and even realize the great vision of listing on the STAR Market.

At the beginning, the Chinese digital yuan DCEP focused on a trial operation in the CCB (China Construction Bank). After proving its basic operation, it will also get basic feedback from all walks of life and urban people’s livelihood in China. With the gradual clarification and strengthening of DCEP in the national economy and the people’s livelihood, such a huge digital currency system like DCEP certainly needs the joint construction of the state and the people in many aspects to create a new digital yuan network and to actively explore internationalization.”

Daniel Lv, co-founder of Nervos:

“The fact that China is working on a digital yuan is proof that there’s value in digital assets and the underlying blockchain technology. The primary purpose of introducing a central bank digital currency is to protect monetary sovereignty out of concern that Bitcoin and other cryptocurrencies will have an impact. The DCEP will also improve the efficiency of payment systems and enhance the convenience of yuan payments.

Blockchain itself is a combination of many existing mature technologies, such as asymmetric cryptography, consensus algorithm, time-stamping, etc. As seen from its latest disclosed patent, DCEP is integrated with asymmetric cryptography, unspent transaction output (UTXO), and smart contracts.

The digital yuan adopts a two-layered system for issuance and distribution — the central bank issues DCEP to banks or other financial institutions, and then these institutions further distribute the digital currency to the public. While the issuance of DCEP is centralized, the circulation could be based on traditional financial account systems or blockchains.

If DCEP transactions happen on a public blockchain, I assume it will probably help the yuan to internationalize. China’s central bank had previously announced that the DCEP pilot scenario included Winter Olympics venues. Foreign entities can simply open a DCEP wallet to conduct the cross-border transaction, as the requirements to open a DCEP wallet are much lower than those to open a yuan deposit account. Peer-to-peer transactions can be initiated between any two DCEP wallets.”

Discus Fish, co-founder of F2Pool and Cobo:

“Essentially, the central bank digital currency is completely different from Bitcoin and other cryptocurrencies because it is still the centralized fiat currency in essence. However, the CBDC may strengthen the public’s perception of blockchain and cryptocurrency. In the long run, under the education of the central bank, the blockchain industry will attract a large number of new users, especially the young people growing up in the mobile Internet environment, thus leading to the rapid development of the industry. It has a long-term positive impact on the industry.

The essence of CBDC is the centralized fiat currency, which is still the central bank’s debt to the public. Therefore, the central bank will adhere to the centralized management mode. This relationship between creditor’s rights and debt will not change with the change of monetary form. Therefore, I think no matter how the form develops, it is impossible for the central bank’s digital currency to be decentralized.”

Kevin Shao, co-founder of Bitrise Capital:

“The development of the Internet has brought the popularization of electronic payments, especially the applications of Alipay and WeChat payment, which have changed the habits of many people around using cash. Such changes are profoundly affecting China’s financial development. The central bank is also following the trend of digital economic development, starting from the top-level design of the country, and building a complete set of electronic payment infrastructure.

At present, the central bank has not made a final decision on which technical means will be used for the digital currency. However, we have seen that some cities have experimented with digital currencies. But overall, China’s digital currency still serves the central bank’s monetary policy and monetary functions.”

All interviewees had been featured in Cointelegraph China’s Top 100 Notable People in Blockchain of 2020Cointelegraph China contributed to the interviews.

The views, ideas and opinions expressed listed here are the authors’ alone and don’t essentially mirror or characterize the views and opinions of Cointelegraph.

The quotes have been edited and condensed.