The Chinese central bank’s digital yuan experiment is gaining traction.
The People’s Bank of China’s central bank digital currency (CBDC)—a digital counterpart of a fiat currency—now has more than 20 million wallets and has handled 35.5 billion RMB ($5.4 billion) in transactions, according to a status report released today.
The new currency is the largest CBDC initiative in the world. It will supplement, but not replace, ordinary cash, as many people in the extremely diversified, 1.4 billion-strong country still use paper money.
However, programmable money has its own set of benefits, and the bank reiterated that their new currency includes “smart contract programmability.”
According to the PBoC, its digital yuan can be programmed with “smart contracts that do not degrade its monetary function” and is based on “security and compliance.” According to the bank, a smart contact-powered digital yuan might enable automated payments.
For numerous years, smart contract programmability has been a part of the currency’s design. It’s one of seven design qualities cited by the bank in its research, which also includes low expenses and anonymity. The bank underlined that law enforcement will “control” anonymity.
According to the paper, “the e-CNY [digital yuan] system collects less transaction information than traditional electronic payment [systems] and does not transfer information to third parties or other government agencies unless specified otherwise in-laws and regulations.”
The bank would put in place a “firewall” to maintain anonymity, as well as prohibit arbitrary information requests and enforce security and privacy measures.
But it’s not the same as cryptography.
While cryptocurrencies like Ethereum popularized smart contracts, China’s new digital currency is nothing like a decentralized cryptocurrency. Due to their “lack of intrinsic value, sharp price swings, low trading efficiencies, and massive energy consumption,” decentralized currencies, according to the PBoC, cannot be “employed in daily economic activity.”
According to the paper, cryptocurrency poses a risk to financial security and social stability, particularly “global stablecoins” created by private parties to “address the relatively large price fluctuation problem of cryptocurrencies.”
Stablecoins, such as Tether and USD, are cryptocurrencies that are tied 1:1 to fiat currencies. They’re similar to CBDCs in concept, but they’re not controlled by the government.
The PBoC announcement comes just a week after Fan Yifei, the bank’s deputy governor, stated that Chinese officials are “very concerned about [stablecoins]” and “have taken certain actions” to combat them.
He didn’t say what steps the bank has taken, but he did say that the rate of advancement in payment systems is “extremely worrying,” and that the bank is fighting monopolies and “disorderly capital expansion.”
Beijing, China’s capital city, held a lottery for its digital yuan last month. A total prize fund of 40 million renminbi ($6.2 million) might be won by the inhabitants.
Perhaps China’s new CBDC isn’t all that dissimilar to crypto ventures that airdrop their currency to generate interest.