The value of transactons done in China’s Central Bank Digital Currency (e-CNY) reached 34.5 billion Yuan or $5 billion, by the end of June 2021, according to the People’s Bank of China (PBOC).
In a progress report, the bank indicated that the CBDC will be compatible with smart contracts. This is just a day after the chairman of the U.S Federal Reserve indicated that CBDCs can make stablecoins and even private cryptocurrencies unnecessary.
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The China report, titled, ‘Progress of Research and Development of E-CNY in China,’ indicates that the CBDC will be issued by the Central Bank and commercial banks will only distribute it, clarifying an earlier suggestion that it will be issued by ‘state banks.’
So far, total number of transactions done using the digital Yuan was 70.75 million. This involved almost 21 million personal wallets and 3.5 million corporate wallets.
The bank also outlines the following objectives behind creating the CBDC:
- Financial Inclusion
As usage of cash drops across the country, the PBoC aims to enhance financial inclusion. Interestingly, the bank has indicated that digital Renminbi holdings will not earn interest.
- Fair Competition and Interoperability
The bank is also aiming to promote fair competition and interoperability between different forms of digital cash. PBoC has said that the CBDC will be different from other digital payment tools, like those operated by Alipay or WeChatPay, because it will be legal tender.
PBoC will also not require a bank account to set up but will support offline payments and even provide users the ability to set up using just a phone number.
“The e-CNY system collects less transaction information than traditional electronic payment and does not provide information to third parties or other government agencies unless stipulated otherwise in laws and regulations.”
– Progress of Research and Development, E-CNY in China
- Cross Border Payments
PBoC believes that the CBDC can have international use, even though it is designed for domestic use. An area in Shanghai called Pudong has recently outlined plans to use the digital yuan for cross border trade finance.
“The internationalization of a currency is a natural result of market selection. The international status of a country’s currency depends on its economic fundamentals and the depth, efficiency and openness of its financial markets.”
– Progress of Research and Development, E-CNY in China
The bank also indicated that the “basic design” of the currency is in place, even though they will continue trials across the country, including doing even more trials.
The report outlines several design features of the digital currency:
- Safety
- Anonymity
- Programmability
- Non-interest Accrual
- Low Costs
- Settlement upon payment
- Identifiable both as an account-based and value-based system
A key design of the currency’s “programmability” is that it will utilize smart contracts. Smart contracts will enable self-executing payments that are carried out based on predefined conditions agreed upon between 2 sides.
The paper does not indicate that the smart contracts will be built on a blockchain, but suggested that e-CNY will use digital certificates, digital signatures, and encrypted storage to secure transactions, and to prevent double spending.
The digital currency can be stored in both hardware and software wallets.
Trials have been ongoing for over a year, and were originally restricted to the 4 cities of Chengdu, Shenzhen, Suzhou, and Xiong’an. Only selected individuals could access the currency as part of the trials.
Since then, the country has introduced lotteries which made the currency available to more members of the public in the 4 cities, and then expanded into the cities of Shanghai and Beijing.
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