China's digital currency(I): A timeline
On April 5, The Wall Street Journal published a story on China’s digital currency, which has stirred up some interest among China watchers.
Your host thought it would probably be timely to put together a newsletter that focuses on this novel yet potentially revolutionary technology.
This newsletter will consist of a compilation of articles related to China’s digital currency, they include development milestones, analysis, and other literature you host believes may be of value for those who seek a better understanding of China’s digital currency.
Your host has assembled the articles in the manner of a timeline. Due to the restricted length of the newsletter, several articles that explain the digital RMB will be featured in part 2. Stay tuned.
Timeline of Digital RMB
Note: 1. items listed in this timeline are quoted from here unless otherwise linked.
2: the text is sourced from a wide range of media/websites, which may follow different editorial practices, your host did his best to mend the gaps, and apologize in advance if any editorial inconsistencies were missed.
With the support of then People’s Bank of China (PBoC) governor Zhou Xiaochuan, the PBoC launched a research group tasked to develop China’s official digital currency.
The PBoC expands the research group, the research group reportedly conducted serious research into the operational structure of digital currency issuance, the core technology of digital currency, the circulation environment of digital currency, legal issues facing digital currency, potential impact digital currency may have on the financial system, the relationship between official and private digital currency, and experience from other countries on issuing digital currency.
The research has reportedly yielded some results.
A series of PBoC research reports were formulated on digital currency, and the PBoC’s plan for issuing an official digital currency has undergone two rounds of editing.
The PBoC holds a digital currency forum in Beijing, during which the goal of developing China’s official digital currency was first publically announced. The PBoC research group stated that it was their goal for speedy issuance of digital currency.
Zhou Xiaochuan tells the media that there are no timetables for issuing China’s digital currency and that it may take as long as a decade to transit from one version of RMB to the next. He says:
For a very long time, digital currency and cash will be used in parallel, and cash will be gradually phased out. The transaction cost of cash will slowly rise in the later period, for example, banks offered coin counting service for free, but in the future, that may change. With incentives, people will naturally use digital currency more often, though the two will still coexist for a prolonged period.
The PBoC lists job openings on its official website for digital currency development talents, such as those who hold doctoral or postgraduate degrees in computer, information security, and encryption major.
The job descriptions for the openings are 1) architectural design and development of software and hardware for digital currencies and related underlying platforms, 2) The research of key cryptographic technologies used in digital currencies, symmetric and asymmetric cryptographic algorithms, authentication, and encryption.
The central bank officially establishes the Digital Currency Research Institute (DCRI). After the successful development of prototype digital currency, the institute is cooperating with institutions and industries in Nanjing, Shenzhen, among other places, to put the result of financial technology research into application. The R&D of the PBoC's digital currency is currently managed by the Currency, Gold, and Silver Bureau of the PBoC.
Feb. 1, 2017
The blockchain-based digital currency trading platform promoted by the PBoC has been successfully tested, and the official digital currency issued by the PBoC has been piloted on the platform.
PBoC Deputy Governor Chen Yulu tells the media that as the next step, fintech’s impact on personal asset safety, privacy protection, global financial stability, and global financial governance structure needs to be thoroughly studied.
Yao Qian and Di Gang were named director and deputy director of the DCRI. Yao Qian was a former PBoC official, while Di Gang was previously the CTO of Silk Road Fund.
Five ministries of the central gov’t issue financial standardization development plan for the 13th five-year plan, in which it was stated that
Continue to promote international standardization of finance, and strive to lead the development of one to two international standards in key areas such as mobile financial services, non-bank payments, digital currency.
Fan Yifei, Deputy Governor of the PBoC, publishes a signed article in which he made several arguments for the path the future digital currency should pursue.
First, China's central bank digital currency should adopt a two-tier delivery system
Second, under the two-tier placement system arrangement, China's central bank digital currency should be placed in a loosely coupled way with accounts and adhere to a centralized management model
Third, the design of China's central bank digital currency at this stage should focus on M0 substitution instead of M1 and M2 substitution
Fourth, A cautious attitude should be maintained towards the loading of smart contracts with the central bank digital currency.
March 28, 2018
The PBoC held a national monetary and financial work teleconference of 2018, which stated,
Steadily promote the research and development of the central bank's digital currency.
Sun Guofeng, the director of the PBoC Financial Institute，a think tank-like organization affiliated with the PBoC, wrote in a PBoC working paper that digital currency can make it easier for the central bank to adopt a negative interest rate.
Note: disclaimer under the paper stated The Working Paper Series of the PBoC publishes research reports written by staff members of the PBoC, in order to facilitate scholarly exchanges. The views of these reports are those of the authors and do not represent the PBoC.
Central bank digital currency is conducive to the implementation of negative interest rate policy, so the central bank should accelerate the development of central bank digital currency.
With the development of technology, it is the trend for the central bank to issue digital currency. The central bank can set the interest rates of digital currency to negative when needed, so the replacement of cash with digital currency will prevent the withdrawal of cash from undermining the negative interest rate policy.
The PBoC held a national monetary and financial work conference of 2019, which stated
Deepening the research and development of the central bank's digital currency
Note: notice the change of verb from “steadily” to “deepening” in one year’s time, signaling that the development of digital currency is picking up pace in 2019.
The PBoC holds working teleconference for the second half of 2019, stating
Accelerate the pace of research and development of China's digital currency (DC/EP), and study the development trend of virtual currencies at home and abroad, and continue to strengthen the regulation of Internet financial risks.
Note: Half-year after the previous meeting, the verb has changed to “accelerate”.
*DC/EP stands for Digital Currency Electronic Payment
Yi Gang, PBoC Governor, further revealed some features of the future digital currency.
The development of China's central bank digital currency has made positive progress, and it is proposed to combine the central bank digital currency with electronic payment instruments.
央行数字货币的目标是替代一部分 M0（现金），而不是去替代 M1 或者广义货币 M2。
The goal of the central bank's digital currency is to replace a portion of M0 (cash), not to replace M1 or broad money M2.
The central bank digital currency adopts a two-tier operating system of the central bank and commercial banks, which does not change the current money delivery path and system.
There is no timetable for the launch of the central bank's digital currency, and there will be a series of research, testing, piloting, evaluation and risk prevention processes to be carried out. The central bank's digital currency will adhere to centralized management, and there is no predetermined technical route in the research and development work. It can be selected on the basis of fair competition in the market, and can consider both blockchain technology and new technology evolved on the basis of existing electronic payment, fully mobilizing the market's enthusiasm and creativity.
Oct. 28, 2019
Huang Qifan, former mayor of Chongqing, said the PBoC may be the first central bank to roll out a digital currency. He said
中国人民银行对于 DC/EP 的研究已经有五六年，我认为已趋于成熟。中国人民银行很可能是全球第一个推出数字货币的央行。
ThePBoC has been working on DC/EP for five or six years and I think it is maturing. The PBoC is likely to be the first central bank in the world to launch a digital currency.
Nov. 28, 2019
Fan Yifei, deputy governor of the PBoC, said at a forum that the central bank's digital currency DC/EP has basically completed top-level design, standard development, function research and development, and joint testing under the premise of adhering to double-layer placement, M0 replacement, and controlled anonymity. The next step will be to reasonably select pilot verification areas, scenarios, and service scope guided by the principles of steady, safe and controllable. And also continuously optimize and enrich DC/EP functions, and steadily promote the introduction and application of digital forms of legal tender.
According to media reports, a pilot program to try digital currency in real-life settings has been slated.
《财经》报道，由人民银行牵头，工、农、中、建四大国有商业银行，中国移动、中国电信、中国联通三大电信运营商共同参与的央行法定数字货币试点项目有望在深圳、苏州等地落地。本次试点有区别将之前的试点，将走出央行系统，进入交通、教育、医疗等实实在在的服务场景，触达 C 端用户，产生频繁应用。
The central bank's legal digital currency pilot project, led by the People's Bank of China, with the participation of the four state-owned commercial banks of ICBC, ABC, BOC and CBC, and the three major telecom operators of China Mobile, China Telecom and China Unicom, is expected to land in Shenzhen and Suzhou.
The pilot will be different from the previous pilot, and will go out of the central bank system and into real service scenarios such as transportation, education, and medical care to reach consumer and generate frequent applications.
According to people close to the pilot project team, the pilot (Shenzhen digital currency pilot) is planned to be divided into two phases, the end of this year is phase I, where the currency is tested in small range of scenarios, next year for phase II, the currency will be promoted throughout Shenzhen.
At a seminar held by the National Development and Reform Commission, more than 10 experts came to the consensus that the epidemic may speed up China’s push to roll out its digital currency.
The epidemic is a catalyst for the digital economy, and rapid, comprehensive, and accurate data collection and analysis are a prerequisite for efficient decision-making. In the post-epidemic period, China will likely increase investment and procurement efforts. The central bank's digital currency may be accelerated and become a special "special fund", the flow of which can be managed.
April 3, 2020
The PBoC holds national currency, gold and silver, and safety teleconference, during which “Strengthen top-level design and unswervingly promote the research and development of digital currency" (加强顶层设计，坚定不移推进法定数字货币研发工作) was listed as a top priority.
Xinhua News Agency quoted an official with the PBoC DCRI as saying that the digital currency will first be tested in closed settings in Shenzhen, Suzhou, Xiong’an, Chengdu, and Winter Olympic facilities. The official also said testing the digital currency in closed settings does not affect normal RMB circulation.
Chinese ride-hailing company Didi Chuxing announced that it has signed a strategic cooperation agreement with the PBoC DCRI, and both sides will conduct research on how to implement the digital currency in rideshare service settings.
Media reports that the PBoC is mulling testing the digital currency on Chinese delivery platform Meituan. Other businesses that are actively seeking to play role in the rolling out of the digital currency includes video-sharing website BiliBili, Bytedance, China Postal Savings Bank of China, and Bank of Communications.
The government of Fuzhou, Fujian Province, said it is actively applying to be one of the hosts for second wave testing of the digital currency.
Xinhua News Agency quotes a source from the PBoC as saying “If everything works well, the public may have a chance at seeing the digital currency’s true face.”
Chinese e-commerce company JD.com announces a strategic cooperation deal is reached with the PBoC’s DCRI, saying both sides will join hands in innovating mobile applications for the digital currency, paving the way for the implication of digital currency in cyber and real-life settings, and expand the digital currency’s wallet ecosystem.
Oct.9, 2020 (Eng)
The government of Shenzhen says it is handing out 50,000 red packets containing a total of 10 million digital RMB to local residents via a random draw.
A newspaper affiliated with Xinhua News Agency says despite enjoying advantages over third-party paying apps such as Alipay and Wechat, digital RMB is unlikely to shake their market share dominance.
After nearly a week of the digital RMB pilot program in Shenzhen, Xinhua ran a story recounting its rollout.
The report said a total of 47573 individuals successfully collected their red packets of 200 digital yuan each, and spend a total of 8.764 mln yuan through 62788 transactions.
To support the pilot program, a total of 3389 businesses upgraded their cashier system to adapt to the digital RMB at no extra cost.
Consumer Zhao Quanhai, who was interviewed in the story, commented that the experience was similar to using Alipay or Wechat Pay, but the internet environment was unnecessary. Zhao said it was “smooth and fast.”
The PBoC releases a draft to amend the People’s Bank of China Law of the People’s Republic of China and is seeking comments from the public.
One of the changes proposed was to state RMB can be issued in physical or digital form, that no organization or individual may manufacture, distribute digital currency that serves as an alternative to the RMB.
The report cites a PBoC source as saying that the amendment would provide legal provision for the rolling out of the digital currency.
Huawei unveils its Mate 40 smartphone, dubbing it as the first smartphone that supports the digital currency wallet function.
Chinese President Xi Jinping said that G20 members should explore the formulation of standards and principles on legitimate digital currencies in an open and inclusive manner.
Dec.4, 2020 (Eng)
The city of Suzhou announces it is launching a digital RMB trial by handing out 20 million yuan worth of red packets to 100,000 residents via a lottery draw. The report says almost 10,000 businesses are equipped to receive digital RMB, and it will also be the first time for consumers to shell out their digital cash online, through the e-commerce platform JD.com
Digital RMB made available to use on the Beijing Daxing International Airport express train. Foreign nationals may also experience the digital RMB upon their visit during the 2022 Winter Olympics.
Feb.7, 2021 (Eng)
Beijing government hands out 50,000 red packets containing 10 million digital RMB via a lottery draw
Feb. 24, 2021 (Eng)
The PBoC’s DCRI says it is joining hands with the central banks of Thailand, UAE, as well as financial regulators in Hong Kong, to explore the application of digital RMB in cross-border transactions.
March 13, 2021
China’s 14th five-year plan includes language that echos Xi’s remarks during a G20 summit in Nov. 2020.
It says China should
Actively participate in the development of international rules and digital technology standards for data security, digital currency, digital tax, etc.
Per Xinhua, Shanghai banks have begun accepting applications for digital RMB wallets. Customers may put in a request that is subject to review by the PBoC, and if the application is approved, the customer may begin using the digital wallet. The application process takes from 2-3 workdays to 1-2 wks.
This newsletter is penned by Yang Liu, founder of Beijing Channel