Is China about to launch a digital currency in two of its cities?
China is set to begin piloting its proposed cryptocurrency in two cities, according to a report from Chinese finance and economics magazine Caijing.
The digital yuan, or the Digital Currency Electronic Payment (DCEP), has been in the works since 2014, albeit kept relatively quiet by China’s central bank until recently. The project began initially with a research team set up to explore using a digital currency to cut the costs associated with circulating traditional paper-based monies and boost control of the money supply.
In September, representatives from the People’s Bank of China’s (PBOC) payments department noted that the currency would bear some similarities to Facebook’s controversial proposed Libra cryptocurrency, though would not be an exact copy, according to reports by Reuters.
News of the pending trials suggest that China could become the first major economy to issue sovereign digital money.
The Caijing report said that the PBOC will partner with commercial banks to issue the currency, and tests will likely include various state-owned firms: four commercial banks and three major telecoms providers.
Mu Changchun, head of the PBOC’s digital currency research institute, also confirmed that DCEP will be compatible with Alipay and WeChat Pay, two mobile payments services that are already highly popular in China. It will also be at least partially based on blockchain technology.
Prior to the announcement of the trial, China’s securities watchdog announced the appointment of Yao Qian, the former head of China’s central bank digital currency initiative, as its new department chief for a division set up with the aim of integrating more advanced technology into the regulation of China’s securities market.
Yao, having previously served in the PBOC, has a strong grasp of cryptocurrency and has previously discussed what the implementation of DCEP could look like.
Privacy questions still remain
There are still questions over the privacy implications of replacing traditional cash with a traceable digital currency, as it essentially gives the central bank a view of everyone’s transactions.
Mu has promised to provide anonymity previously when pressed on the issue, yet has also said that the system will “keep the balance” between privacy and controlling elicit transactions. As of yet, the PBOC has not explained what that balancing act will entail.