A representative of the state-owned Bank of China has spoken to CCTV, China’s main state-owned television network, about China’s upcoming digital CNY. The representative confirmed that pilot tests had begun in several cities in China. She also confirmed commercial institutions would pay a 100% reserve to the central bank to ensure the digital CNY is not oversold. Moreover, as long as two devices have the prescribed digital wallet installed, transactions will be able to take place even without a network connection.
What else we know so far about the digital yuan
→ The tech
The way this CBDC (central bank digital currency) works, as explained by Cointelegraph, is that transactions are split into execution instructions corresponding to each party, along with an execution priority for each instruction. Instructions are then sorted and executed in order. By following the sorted execution instruction list back, transactions can be traced back for the entire life cycle of the CBDC.
Although this resembles some characteristics of blockchain transactions, the digital CNY is not a cryptocurrency. Nevertheless, some features pertain. A patent released in February describes front-end encryption machines, deployed by the central bank with secondary issuers of the currency. These would monitor secondary issuance and transactions, and roughly carry out the role nodes play in blockchains.
Completely anonymous transactions would be impossible as the simplest of wallets will require a mobile phone number and email address to register (mobile phone numbers have to be registered with ID cards in China). Patents show there will also be mechanisms for operating agencies to restrict accounts suspected of breaking currently undisclosed rules. The design of the digital CNY illustrates the intention for greater control over the monetary system, as opposed to the philosophy of decentralisation that cryptocurrencies ascribe to.
Alipay, China’s largest mobile payment service, has contributed to the research and development of the currency’s hardware, distribution, and payment channel technology. Alipay will also be a secondary issuer of the digital CNY along with several commercial banks in China.
Several trials have already begun in China. In the most widely reported, local workers in Xiangcheng District of Suzhou, a city west of Shanghai, will receive 50% of their transport subsidies with one of four banks involved in the scheme. Starbucks, McDonald’s, Subway, and several other restaurants and shops are also involved in trials in Xiong’an New Area in Baoding, a city south of Beijing.
There is no official indication for the digital CNY’s release date. However, one of the sites of the upcoming Beijing Winter Olympics is a current trial site. It is likely that the digital CNY will be ready for use before the games, which will take place in February 2022.
Images of a mobile wallet supporting the digital CNY recently leaked on social media. The app was developed by the Agricultural Bank of China and allows users to pay merchants by scanning a QR code, just like how other popular mobile payment applications in China work. Users can also transfer and convert fiat CNY from bank accounts into the digital CNY.
Digital currencies: the latest in the US
The idea of a digital USD recently appeared in two different bills in the House of Representatives, the lower house of the United States Congress. The proposals would have allowed the Federal Reserve to manage a digital wallet for every US resident to deposit COVID-19 stimulus funds into easily.
The digital USD proposals did not make it through; instead, only those with a direct-deposit bank address on file were eligible to receive the stimulus – those who did not will have to wait several months. However, with many reportedly not receiving the stimulus due to a range of glitches, perhaps the idea of a digital USD will resurface in coming weeks and months.
Libra, Facebook’s proposed digital currency, this month also pulled back from its original idea of a single digital currency backed by a basket of fiat currencies. The consortium set up last year by Facebook now plans to develop several digital currencies, each representing a different fiat currency.