The People’s Bank of China (PBoC) research and development working group for the DCEP published a technical paper on the country’s digital currency of the PRC.
The regulator noted that it is currently focusing on pilot trials of the project, as the development of features and testing of the system are largely complete.
According to the document, China’s economy is “shifting from high-speed growth to high-quality development,” and the country needs retail payments infrastructure “tailored to the digital era.”
The PBoC emphasised that as digitisation progresses, cash payments are declining, and more cryptocurrencies and global stablecoins are entering the market, bringing systemic risks. This has prompted the development of a tool the regulator calls the e-CNY.
“[Cryptocurrencies] have no intrinsic value, are highly volatile, have low transaction efficiency and enormous energy consumption. They are unlikely to serve as currency used in everyday economic activity. Moreover, cryptocurrencies are speculative instruments, posing risks to financial security and social stability,” the document says.
The PBoC defines e-CNY as the central bank–issued digital version of the fiat yuan, which is managed by authorised operators. It is a hybrid financial instrument with the status of legal tender in the PRC and loose coupling to accounts.
“The digital yuan possesses all the main functions of money […]. The emission and circulation [e-CNY] are identical to the physical yuan, but its value is transmitted in digital form. […] The digital yuan is a central bank obligation to the public,” the regulator noted.
Because the PBoC regards e-CNY as денежной массе M0, deposits in the digital yuan do not accrue and do not pay interest. There are no fees for transactions with the instrument.
With the rollout of the e-CNY, the PBoC aims to improve access to financial services in China. For example, foreign nationals will be able to open a digital wallet without opening a bank account. The instrument is also compatible with existing payment systems.
The regulator emphasised that the digital yuan is ready for use in cross-border payments, but given the complex international environment, the instrument is primarily aimed at the domestic market.
“In the future, the PBoC will actively respond to the initiatives G20 and other international organisations to improve cross-border payments, as well as study the use of CBDC in cross-border operations”, the central bank added.
Specialists from the PBoC said that e-CNY will be included in the regulatory framework. It already complies with its requirements, including anti-money laundering and counter-terrorism financing provisions, the document says.
The e-CNY supports anonymous transactions provided they are of small value. Large transfers are tracked.
“[The digital yuan] is designed to meet public demand for low-value anonymous payment services […]. At the same time, safeguards are needed against improper use of the e-CNY in criminal activity,” the regulator noted.
The PBoC says the digital yuan system collects less information about transactions than existing electronic payment systems, and does not share this data with third parties.
The document envisages several types of digital wallets. Depending on the “degree of identification of personal data,” there are different limits per transaction and on daily operations. The least privileged accounts may be registered without providing identity documents.
Legal entities and individual entrepreneurs can also open a digital wallet. They are subject to similar rules, and there is the possibility to create several additional wallets linked to the main one.
The regulator has for the first time officially stated that the e-CNY supports smart contracts and is a programmable instrument. According to PBoC experts, this capability does not compromise its monetary functions.
Earlier testing in the Sichuan capital showed that the use cases for the e-CNY could be restricted, creating additional possibilities for censoring transactions.
The PBoC expects to receive comments from stakeholders and the public. The regulator has not presented a concrete project roadmap or timelines for its official launch.
As noted, billionaire Kyle Bass called for the United States to ban the digital yuan, arguing that China could use the instrument to pressure competing countries.
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