Is China’s National Cryptocurrency The Beginning Of A New Financial Era?

Short Insights

• China will establish a national blockchain platform called Blockchain Service Network on April 25, 2020, before the launch of its government-backed cryptocurrency.
• In April 2020, the first version of the digital cryptocurrency’s screenshots popped up online.
• China might gain a lot of advantages to be the first to establish a government-backed digital currency.

• There is a likelihood that this can mark an entry into a new era where physical cash ends and the central bank cryptocurrencies begin.

China will establish a national blockchain platform called (BSN) Blockchain Service Network on April 25, 2020. This was brought to notice a few weeks ago. It is believed that this move is initiated before the launch of China’s government-backed cryptocurrency, DC/EP. And this initiative seems to be taken with much more seriousness than ever before. 

There are indications that the crypto-yuan will be launched shortly. The majority of the experts believe that this could change the whole course for the global financial system. Drawing attention to what exactly is known at present and what it concludes, below are a few facts.

The course of history

Xi Jinping, People’s Republic of China’s Chairman, last year had said that China has prioritized the development of blockchain-tech. This is for the acceleration of the industry’s growth. It was already known at that time about China developing its own cryptocurrency since the year 2014.

And since the announcement of Facebook plans for Libra became known, China became much encouraged. The anticipation of Facebook’s issuance of its own currency awakened the governments all around the globe.

China took hold of it as an incentive. Firstly, to enter into competition with the dollar in the digital payments market. And, eventually, to change the global financial system fully.

China set an example for other countries to understand what the future might hold. Therefore, its idea encouraged many countries to announce their own CBDCs (Central Bank Digital Currencies) development. 

What do the BSN screenshots reveal?

In April 2020, the first version of the digital yuan application’s screenshots popped up online. The tests started among the “white list” of the Agricultural Bank of China’s clients in four pilot regions including Shenzhen, Hong Kong, Chengdu, and Suzhou. This is known through the preliminary information. In April, Suzhou enterprises also plan to pay transport subsidies accounting for 50% to local workers with the new digital currency.

Few basic functions are revealed in the screenshots, and the interface shows similarity to Alipay and WeChat Pay. Both of the applications belong to Chinese payment platforms. Besides, according to what officials have stated, there is already a possibility to understand the majority of the cryptocurrency’s functions.

What is known about China’s digital currency at present?

Shifting the focus to what is unveiled about China’s digital currency are the following points.

• The Chinese cryptocurrency is DC/EP, abbreviated as Digital Currency Electronic Payment. No official confirmation by the Central Bank regarding the schedule for the digital yuan’s introduction. 
• One of the attention-drawing functions of this crypto is ‘touch and touch’. This function allows users to make a transfer just by a simple touch on their phones.

• Crypto is designed to support offline transfers too. However, the specific settlement mechanism still remains unclarified.

• The BSN payment systems can perform up to 300,000 transactions per second. The Chinese cryptocurrency offers high throughput, besides traditional retail transactions and micropayments.

• The currency will be issued firstly to commercial banks by the Central Bank. After this, commercial banks will circulate it. Banks and organizations will act as DC/EP issuers to exchange the crypto with other fiat money and assets.

• The Central Bank views this digital currency capable to limit the private currencies’ issuance and to reduce risks associated with financial instability.

• The crypto yuan will lead to a significant expansion of China’s financial infrastructure availability, according to their plan.

• The central bank also brings to attention that DC/EP will be used largely during the 2022 Olympic Games, planned to be held in Beijing.

What conclusions can be drawn through the information available?

DC/EP’s concept does not seem similar to a decentralized cryptocurrency as per what is known about the crypto presently. There are less significant differences in this new system in comparison to WeChat Pay or AliPay. The data structure of the blockchain will assure high traceability and control, for the government.

China might gain a lot of advantages to be the first to establish a government-backed digital currency. Also, Libra and Ton, both competing projects are facing hurdles along their way.

China will set an unprecedented example for other governments to follow. There is a likelihood that this can mark an entry into a new era where physical cash ends and the central bank cryptocurrencies begin. Alongside a much stronger likelihood that this will transform the international monetary system entirely.

Umme Haani