China on track to launch the World’s first CBDC. While China seems to embrace the emerging technologies whole-heartedly but on the other hand actions like banning cryptocurrencies in the country seem to contradict this notion.
This is not just restricted to cryptocurrencies though. China seems to have divergent views on the broader use of technology.
China is enacting a two-pronged strategy when it comes to technological adoption.
The country has a long history of keeping a tight lid on things — from economic policies to civil liberties to use of technology, everything is under strict government control. As long as things agree with the government line, it’s ok, otherwise, they are no good.
One of the most evident examples of this is the use of facial recognition —whereby 570 million CCTV cameras are expected to be put in place by 2021 in the country to score its citizens on social behavior.
But when it comes to the use of AI and/or Virtual reality by people, new rules are being enacted starting Jan. 1, 2020 in an apparent move to root out deepfakes & fake news from online content.
Coming back to the issue of Blockchain & Cryptocurrencies — President Xi in October, praised the blockchain tech saying that the country should pounce on this opportunity to advance the digital transformation agenda.
The blockchain-based cryptocurrencies rose sharply in reaction to the statement, but the Chinese authorities were quick to curb the euphoria saying blockchain should be not be equated with cryptocurrencies.
The decentralized cryptocurrencies remain banned in the country for obvious reasons — the government can’t control them.
The answer to that has been a central bank digital currency (CBDC), which has been under development in China for several years now, the process has accelerated this year in the wake of the proposed launch of Libra.
China fears that even a limited approval of Libra coin with an ecosystem of 2.5 billion users backed by the U.S dollar will reinforce the hegemony of the Greenback.
Also, the growing adoption of mainstream cryptocurrencies is another worry whereby the government would have little or no way of tracking the decentralized transactions.
While the Chinese central bank believes the digital version of the fiat currency would give its people the ability to be a part of the new digital economy, critics believe the CBDC is being created to provide the authorities with yet another surveillance tool.
The latest report from Chinese financial news source Caijing suggests that PBoC is getting ready to launch pilots for its digital currency in the two major cities of Shenzhen and Suzhou. The participation of the four major commercial banks —
the Industrial and Commercial Bank of China, Bank of China, China Construction Bank & the Agricultural Bank of China — and three telcos, China Telecom, China Mobile & China Unicom is expected.
The pilot called digital currency electronic payment (DCEP) will see the implementation of electronic payments by the partners in different industries like transportation, education & healthcare.
The participants can also design their own trial scenarios in what is being described by PBoC as a “horse race”, where each one of them will strive for their model’s wider adoption in the future.
As announced earlier too, the DCEP would be similar to Libra but no technical specifications have been given yet. All we know is that DCEP will be powered partially by blockchain technology and dispersed through digital wallets.
The trial consists of two pilot phases — a smaller scale one starting at the end of 2019 and a large scale effort slated for later in 2020. If the pilots are successful, a full-fledged launch is expected soon after.
As other central banks continue to experiment with digital currencies, PBoC seems on track to become the first central bank to issue a CBDC.