China has been at the center of media attention since the country's prime minister called for accelerated blockchain adoption in the country. The timing of the announcement could not have been better, given the fact that China is well set to launch its digital currency DCEP, which would make it the first country to do so.
One of the Central Bank officials believes the launch would create a ‘horse race' among commercial banks and other institutions looking to provide the best of services to their customer base.
China has been working on its digital currency project since 2016, and while there was no projection for the actual launch of the digital Yuan back then, China accelerated the development of the project as soon as Facebook announced its Libra which also has a similar aim of providing a global digital currency.
The Digital Currency Electronic Payment (DCEP) system which would manage the CBDC will be partially powered by blockchain technology. The People's Bank of China is planning to launch the digital currency in two separate phases where it will be first available to a commercial bank and other institutions who would, in turn, resend it to the general public.
Mu Changchun, the head of the central bank’s digital currency research institute told a forum in Hong Kong that,
“During the research period, and also the issuance period there will be a horse race approach. The front runner will take the whole market – who is more efficient, who can provide a better service to the public – they can survive in the future”
He went onto add that Central Bank was technology-neutral, but if someone takes the lead in adopting the tech others will be encouraged to follow the same.
The DCEP has been designed to replace physical paper notes and coins, which means holders of the currency won't receive any interest rates thus there would be no implications for inflation.
Many believe the main aim behind launching the CBDC is to protect the financial sovereignty of the country against new emerging technology which provides borderless currencies. On top of that once the digital currency goes mainstream the government would have the record for every single transaction giving them more monitoring power for the flow of money.