China Has No Final Date for Launch of e-CNY, the ‘Cash Substitute’ with Smart Contract Feature Aiming for Internationalization

Declining use of cash and rapid rise in crypto, especially stablecoins, drove POC’s digital fiat development, which will coexist with physical RMB. In its whitepaper, e-CNY claims to offer anonymity for small value and collects less transaction information than traditional electronic payment unless, of course, “stipulated otherwise in laws and regulations.”

China’s central bank has released the whitepaper of its digital fiat, e-CNY detailing the progress in its research and development. While People’s Bank of China aims to continue the advancement of the pilot in line with its 14th Five-Year Plan, there is “no preset timetable for the final launch” yet.

According to the whitepaper, it is seeking public comments on its digital fiat that is driven by the development of the digital economy, which calls for new retail payment infrastructures.

“As the Chinese economy is shifting from high-speed growth to high-quality development, technological innovation represented by the digital economy has become an important driver of development.”

The bank noted that in China, there is a significant decline in the usage of cash, with the number of transactions done via mobile accounting for 66%, those paid in cash 23%, and cards making up 7%, as per the PBOC survey in 2019.

Also, during the survey period, 46% used no cash.

Besides the foundation of money changing, the “rapid” rise of cryptocurrencies, especially global stablecoins, is another factor driving the need for digital fiat.

Claiming to be decentralized and entirely anonymous, their lack of intrinsic value, acute price fluctuations, low trading efficiencies, and huge energy consumption can hardly serve as currencies used in daily economic activities, wrote the central bank.

As for commercial institutions launching their global stablecoins, it will bring risks and challenges to the international monetary system, monetary policies, and cross-border capital flow management, it added.

The Digital Version of Fiat

“E-CNY is the digital version of fiat currency issued by the PBOC and operated by authorized operators,” notes PBOC as he explains just what exactly is digital fiat.

e-CNY is China’s legal tender with all the basic functions of money, which adopts a centralized management model and a two-tier operational system. This means the right to issue e-CNY belongs to the state with PBOC at the center, which issues e-CNY to authorized operators, which are commercial banks that exchange and circulate e-CNY to the public.

It is simply a “substitute for cash in circulation” and will coexist with physical RMB, which the PBOC will continue to supply as long as there is demand for it, the country's apex bank wrote.

With e-CNY, the central bank’s objective is to diversify the forms of cash and satisfy the public’s demand for digital cash.

While mainly serving domestic retail payment demands, the PBOCs objective is also to explore the improvement of cross-border payments.

Cross-border payment involves various complicated issues, but “the internationalization of a currency is a natural result of market selection,” it said. Given that e-CNY is “technically ready for cross-border use,” the central bank will explore a cross-border pilot while upholding the principle of having a two-tier and risk-free system “to meet regulatory and compliance requirements of various countries,” it said.

PBOC also claims to offer anonymity in its e-CNY but only for small value and traceable for high value. For this, it will set up a firewall for related information.

“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.”

The digital fiat also features programmability, deploying smart contracts that don’t impair its monetary functions, enabling self-executing payments according to predefined conditions or terms agreed between two sides.

When it comes to a wallet, there are different types based on the strength of a customer’s personal information, which the PBOC, together with authorized operators and relevant organizations, jointly build, own, and share.

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