The People's Bank of China and the new e-CNY (Digital Yuan) white paper
In July 2021 , the People's Bank of China (PBOC) released a white paper detailing the current operation of the digital yuan, also known as e-CNY . This white paper sheds light on an immense amount of information about the digital yuan and enables the development of several key pieces of information on what some are calling the world's first viable central bank digital currency system (CBDC), both in the People's Republic of China (PRC) and beyond).
This information indicates increased flexibility in the use of the digital yuan at the potential expense of confidentiality. In addition, the white paper highlightse the PRC's attempts to consolidate the digital yuan as the preferred transaction medium in China, crushing other players in China's strong digital payments industry.
Financial inclusion first for all
The white paper also refers to how even foreigners traveling to China can access the digital yuan without a domestic bank account. This is a particular advantage considering the difficulties foreigners face in using popular digital services like WeChat Pay and AliPay. For example, in In November 2019 , AliPay specifically released the ability to top up digital wallets using prepaid cards. Likewise, WeChat Pay users were forced to use third-party services to fund thetheir wallets, with some examples of foreign credit cards operating on an ad hoc basis for individuals in the past. However, wallets funded through such transactions through foreign credit cards and the like have extremely limited functionality and remain limited to simple one-way payments, a major point of contention for many.
E The publication of the white paper also confirms that the digital yuan is ready for use to support the 2022 Winter Olympics. This supported earlier statements made in July 2021 by the governor PBOC deputy Fan Yifei, who highlighted the Winter Olympics as a key test for the development of the DCEP.
A positive step is the declThe PBOC's statement that it "attaches great importance to the protection of information and confidentiality, " with a specific focus on low value payments. This is important since in 2020 , around 74% of the Chinese population used mobile payments on a daily basis, with transactions under 100 yuan accounting for 38% of total mobile transactions. This emphasis on anonymizing low value payments is well intentioned, but raises questions about other transaction sizes nationally.
In this regard , the widespread financial inclusion of the digital yuan is being developed with "managed anonymity" in mind. However, the PBOC remains vague in the deion of this data privacy protocol, simply mentioningent how it is necessary to "guard against the misuse of e-CNY in illegal and criminal activities" through the mixture of trusted and special IT PBOC. encryption based on hardware and software integration.
The point "managed anonymity" is all the more worrying that certain personnel would be designated to manage the information collected by use of the digital yuan. This point creates a method of access and placement for the authorities of the PRC to control big data in order to support the surveillance of entire individuals and groups. In addition, the PBOC statement regarding the management of the e-CNY "through its full life cycle " supports the notion of increased control over its citizens and others, a note that should make reflectreaders when examining the true data privacy characteristics of the digital yuan.
Holding the reins
In its statement, the PBOC further reiterated its tight control of the digital yuan, with the right to issue the currency digital belonging only to the PRC. Using a two-tier system, the PBOC has shown how it intends to distribute the digital yuan to authorized operators, who in turn exchange and circulate e-CNY. Therefore, the PBOC confirmed that the digital yuan was a direct liability of the central bank. This alleviates some concerns about the potential for depot thefts to the PBOC.
However, using authorized operators such as commercial banks and private platforms is certainly difficult. For example, how could consumers get their funds back in the event of a property default?be authorized? Given the private nature of some of these authorized owners (to potentially include Tencent and Alibaba), would the government step in to provide relief? This is just one of the many questions that can be raised by using public-private partnerships to distribute the digital yuan in a tiered system.
Disrupting others digital payments
The June 2021 announcements of crackdowns on cryptocurrency transactions further underline the PBOC 's desire to dominate the space of digital payments, raising concerns about the potential persistence of the currency ecosystem in China. These actions support a trend in PRC regulations challenging the predominance of private providersin the payment area to include
- the April 2021 announces antitrust sanctions imposed on parent of WeChat Tencent;
- on November 2020 stop of Ant Financial 's IPO;
- and June 2019 decision to block the access to domestic and foreign cryptocurrency exchanges and initial coin offering (ICO) websites.
The forced migration to e-CNY as a payment mechanism would certainly provide proof that the digital yuan is the exclusive method for individuals.us to carry out digital transactions at national level in the future. While certainly more stable due to its fiduciary status, the forced use of the PRC's CBDC could be used to limit access to other services, to include social media, games and platforms. specific policies, which the PRC has not hesitated about restriction of access to in the past . Forcing the use of a specific payment system would have a huge impact on other digital payment services in China, disrupting the industry as a whole through government interventions and mandates.
Overall, the publication of the PBOC white paper is certainly thought-provoking and well-received given the need more informations on the digital yuan. However, the vague notions of "managed anonymity" and the preferential treatment of e-CNY over other forms of digital payment should be of concern to digital payment operators and potential users. Therefore, the ability to monitor, and potentially even control, how funds are used at the individual level has immense implications for users of the digital yuan.
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