Posted by Shaun Young, Solicitor
China launches World’s First Central Bank Digital Currency
China has become the first nation to develop and launch a central bank digital currency, with the Digital Currency Electronic Payment (DCEP) being rolled out across major e-commerce platforms within the country, including the multinational corporation Alibaba Group Holding Limited.
The DCEP is a digital version of China’s national currency, the Yuan, and is backed by Yuan deposits held by China’s Central Bank.
The deployment of the currency to the population is driven by a directive requiring banks in China to convert a proportion of their Yuan reserves into the DCEP, and to distribute this to businesses and customers via mobile technology. The central government has confirmed that all vendors that have accepted digital payments (e.g. Apple Pay) must also accept DCEP.
Whilst the DCEP will incorporate Distributed Ledger Technologies and Blockchain, the DCEP differs from existing cryptocurrencies by virtue of the fact that the DCEP is centralised, being controlled by one entity. Also, individuals using DCEP will be clearly identifiable, which is different to the pseudonymous manner in with participants engage in the trade of Cryptocurrencies on Blockchain. Perhaps most importantly, the DCEP is legal tender, whereas Cryptocurrencies at present largely operate as a means of exchange and cannot be used widely in substitute for cash.
The roll out of the DCEP is the culmination of over 5 years of development, and is seen as a key-turning point in moving China towards becoming a cashless society. A large number of Chinese citizens are also “bank less”, with China having the largest number of citizens in any nation which do not have access to a bank account. As such, it is hoped that the DCEP will result in a greater proportion of the population being involved in traceable banking activities, an important tool when government’s are considering economic policies for implementation. It is also thought that the ease at which the DCEP can be used for retail and international trade may invite wider global demand for and use of the currency.
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