According to a report from an influential Chinese financial news publication, China could be kicking off their digital currency pilot before the end of 2020, after three years of working on it. The Chinese Central bank along with the People’s Bank of China, the four major state-owned commercial banks of Industry, Agriculture, China, and Construction are expected to be launching the pilots within weeks in Shenzhen and Suzhou – as well as some other cities.
“Sources close to the pilot project team said that the pilot (Shenzhen digital currency pilot) plan is divided into two phases. At the end of this year is phase one and the pilot will be a small-scale scenario – however – in the second phase next year it will be promoted in Shenzhen on a large scale.”
Mu Changchun, director of the Digital Currency Research Institute of the Central Bank, pointed out:
“In order to protect our currency sovereignty and fiat currency status, we need to plan ahead.”
The article also noted that Alan Greenspan, former chairman of the board of governors of the US Federal Reserve System put it bluntly at the recent Caijing Magazine Annual Conference 2020, stating how one handles the issue of digital money is actually a political issue, not an economic issue.
“The sovereign credit of a nation is what backs up currencies of individual countries and central banks. No other organization has that calling. The fundamental credit of the United States is far in excess of anything that Facebook can imagine,” said Greenspan when he was taking questions from the audience of the Caijing Magazine Annual Conference 2020.
According to an article by Mike Orcutt in MIT Technology Review, the first phase could start before 2020 and this supports the rumours that China is on the verge of becoming the first major economy to issue sovereign digital money.
The Caijing report seems to confirm several details about the forthcoming currency system, called Digital Currency Electronic Payment (DCEP), that have appeared in news reports during the past several months. For instance, it confirms that the PBOC will partner with commercial banks to issue the currency and that during the initial phase the banks will compete on how best to implement it. It says tests will likely include seven state-owned firms: the four largest commercial banks and three big telecom companies. According to the news report, the tests will involve real-world service scenarios in the areas of transportation, education, and medical treatment.
Goodbye, cash … The report also reiterates that the PBOC means for DCEP to be a direct replacement for physical cash.
In fact, Chinese banknotes and coins are already quickly being replaced by mobile payments, particularly via Alipay and WeChat Pay, the QR-code-based apps that have become ubiquitous in the span of just a few years. It’s been estimated that mobile payments made up more than 80% of all payments in China in 2018, up from less than 20% in 2013.
Along with the eventual elimination of paper and coins, he also noted there could be serious privacy issues:
“… goodbye, privacy? Mu Changchun, the head of the PBOC’s digital currency research institute, has said the DCEP will be compatible with Alipay and WeChat Pay. He also said it can be used without an internet connection. Some of the biggest questions pertain to privacy and anonymity, and how much access the government will have to transaction information. The new report from Caijing repeats something Mu has also said before: that the DCEP will offer users at least some degree of “anonymity.” It does not, however, explain how that might work.”
More from the Caijing report:
“Obviously, the pilot is only the first step. There is still a lot of work to be done in the future, and it is not without challenges. A senior technical solution source told influential Chinese financial news publication that the central bank has done a lot of preparations, including the popularization of currency and products, but from a technical perspective, there is still a long way to go.”
“With the acceleration of the central bank’s research and development of digital currency and pilot projects, it is foreseeable that the financial industry related to the printing, issuing, returning, and storage of banknotes will face changes.”