China is launching a new government backed cryptocurrency. This comes after China launched its national blockchain platform, the Blockchain Service Network (BSN). The country seems to be taking the initiative more seriously than ever.
China has been known for its strict regulatory systems significantly on Cryptocurrency investments and online dealings. However, since Facebook announced its plans for Libra, a blockchain digital cryptocurrency, governments around the world are still trying to wrap their heads around the idea of having a private company (Facebook) with over 2.3 billion users worldwide operating its own currency.
Perhaps to preempt a potential global risk, China has taken it as an incentive to launch the cryptoyuan. Other countries seem to be following suit and some have announced development of their own CBDCs (Central Bank Digital Currencies) such as Russia, Sweden, South Korea, and the European Union.
Few details about the Cryptoyuan have been divulged,but it is believed that the cryptoyuan will be called DC/EP which stands for Digital Currency Electronic Payment.
The Central Bank has not yet confirmed an official launch date or schedule, but sources have predicted a full launch by mid 2021
Apart from the standard send and receive function, payments can be transmitted through a feature called ‘touch and touch’. This means users can simply touch their phones to transfer the currency.
Users do need an internet connection to make transfers. Bluetooth or NFC Technology can be used and the details will be saved and updated once online. Not much is known about the settlement mechanism though.
Also available are common transfer features such as using account numbers and the option to generate and scan QR codes.
Due to the fact that it is a national/government backed system, the cryptocurrency will be suitable for all manner of financial transactions including retail business and micropayment.
The cryptoyuan will not only be blockchain based. It will be issued to the Central bank and then to the commercial banks, and then put to circulation.
Banks and other Financial Institutions will issue the DC/EP and exchange it for other currencies.
The DC/EP will use a two-tier architecture to allow banks and licensed third party institutions to participate in its secondary issuance.
Alipay (Chines Digital Wallet founded by Jack Ma) will be a participant in the implementation of the system.
Every organization that is licensed to participate in the DC/EP issue must have a reserve account with the People’s Bank of China.
Sources say that by March 24, the Bank of China had already completed all important developments and had started drafting laws for implementation of the new technology
The government is tasked with ensuring that the DC/EP enjoys the same sovereignty as the fiat yuan.
The Central Bank said there are plans to use the DC/EP widely during the 2022 Olympic Games to be held in Beijing.
There is a high possibility that many other countries will follow China’s example once implementation is complete. As digitization continues to take root, we might be getting into a cashless era with the emergence of Central Bank cryptocurrency. No doubt, this is bound to change the global financial and monetary system.