The PBOC (People’s Bank of China) has identified some issues relating to regulation and payments in its ongoing pilot tests of its CBDC, and has moved to accelerate testing.
According to PBOC deputy governor Fan Yifei, speaking at the China Digital Finance Forum, while the e-CNY (also called DCEP, or Digital Currency Electronic Payment) test runs have been showing “great potential”, there are still some issues that “need to be solved”.
In particular, the regulatory system, acceptance environments, and payment systems will still require improvement and optimisation before the digital yuan can be launched more broadly, Fan said.
The rules for the treatment of digital currency will be different from those used for fiat currency, he said, adding that the management of the digital yuan should not be through account-based methods completely.
The technical infrastructure under development will support the connections between the e-CNY and traditional payment systems, as well as between e-CNY digital wallets and bank accounts, Fan added.
The digital yuan uses two-layer system, where the core layer is centralised using conventional (non-blockchain) technologies, and banks act as intermediaries in the same way they do for fiat currency.
The PBOC chose not to use blockchain for its CBDC due to the technology’s immaturity, as well as performance, and scalability issues. However, Di Gang, deputy director of the PBOC’s Digital Currency Research Institute, said in a recent speech that the central bank is exploring the use of a distributed ledger at the issuance layer.
Still, the e-CNY already has built-in functionality to make the digital currency programmable via smart contracts. “This feature enables self-executing payments according to predefined conditions or terms agreed between two sides, so as to facilitate business model innovation,” the PBOC said in a recent report.
In the future, the programmability feature will pave the way for applications to be built on top of the e-CNY for real-world use cases – such as tax payments, trade finance, and cross-border payments.
The PBOC has been aiming to fully launch e-CNY by the 2022 Winter Olympics, which will be held in Beijing starting 4 February. To date, an estimated USD 43.6 million worth of digital currency has been issued and distributed to accelerate its usage and testing.
Besides Beijing, pilot testing has been rolled out in nine Chinese cities, where individuals can use the e-CNY to purchase goods online and offline, as well as pay for electricity bills, tolls, and public transport fares. These are Shenzhen, Suzhou, Xiong’an, Chengdu, Shanghai, Hainan, Changsha, Xi’an, Qingdao and Dalian.
Four other cities – Guangzhou, Tianjin, Yiwu and Fuzhou – have reportedly announced they will compete for inclusion in the next batch of pilot cities.