Tier-Based Based Provision of DCEPĪs mentioned earlier, CBDCs present a significant threat to financial institutions. It will also be accompanied by a rollout of hardware wallets fully functional for operating offline, which will help expand DCEP adoption in rural and remote areas with lagging access to internet connectivity. DCEP money will be transferable via the use of NFC (near-field communication), which allows the for the communication of two electronic devices in close proximity similarly to electronic payment apps like Apple Pay and Samsung Pay. The DCEP will also be usable without an active internet connection. The PBOC intends to maintain three core departments: a “Registration Center” responsible for maintaining the centralized ledger of all currency activity, an “Authentication Center” responsible for verifying the identities of parties involved, and a “Big Data” Center responsible for data-mining DCEP transactions. Additionally, given the vast computational power associated with blockchain-based cryptocurrencies, this is a natural outcome for a sovereign currency and a direction that other CBDCs will also take. This centrally-managed ledger instead retains the monetary controls traditional afforded to the governing Central bank. It is instead a digital token currency which relies on cryptography and some blockchain concepts, while lacking the decentralized ledger akin to a blockchain. How is DCEP different from existing cryptocurrencies? The digital yuan is not supported by a blockchain nor is it considered a cryptocurrency in the strictest sense.
The Bitcoin network, the blockchain that supports the most well-known cryptocurrency, is only capable of processing a maximum of seven transactions per second. The Visa network, by contrast, typically supports approximately 1,700 transactions per second. The blockchain ecosystem at present is massively inefficient in regards to resource consumption, which limits its scalability. Note: √ = existing or likely feature, (√ ) = possible feature, X = atypical or impossible featureĪpart from greater control, there are also sustainability and scalability considerations at play. Screenshots of the CCB’s Digital Yuan Wallet The choice of delegating the wallet and distribution to banks speaks to the “two-tier” system the PBOC is employing, which will keep banks from being disintermediated. Screenshots of the app have emerged from pilot tests over social media and the below image is a snapshot of the China Construction Bank’s DCEP wallet app. How Does the DCEP Work?įrom a user perspective, the DCEP functions as a standard wallet or electronic payment app akin to Venmo or WeChat Pay. As China’s CBDC inches closer to launch, we take a look at key features of the DCEP’s design and the implications this could have for the wider political economy. That China is the global leader in this space should come as no surprise, given that the country is already a leader in electronic payment systems. The People’s Bank of China (“PBOC”) first initiated development on the DCEP in 2014 under the guidance of highly regarded governor, Zhou Xiaochuan. Long a holdout, Jerome Powell also recently announced that the US Fed intends to publish a discussion paper on a digital dollar this summer.
The BIS reports that 86% of Central banks are developing a digital currency and around 14% are in the process of rolling out pilot tests. Going by the official moniker of “DCEP” (“Digital Currency/Electronic Payment”), the country is expected to have a mass rollout right in time for the 2022 Winter Olympics in Beijing. China’s progress on this front, coupled with Facebook’s 2019 announcement of its own digital currency, Libra (now known as “Diem”), were two of the catalysts for the latter day “space race” to develop CBDCs. Taken to the extreme, these forms of digital payment could potentially void the need for traditional banks altogether while the technology underlying tokenized forms of CBDCs opens up boundless possibility for novel forms of economic policy.Ĭhina is the furthest along in its CBDC development roadmap and has already rolled out pilot tests in several major cities. Central Bank Digital Currencies (CBDCs) could well be one of the most far-reaching advances of the 21st century.
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