Connect with us


China's Official Digital Currency – Key Features and Features



In August, representatives of the People’s Bank of China announced that the country's sovereign digital currency was almost ready to launch after five years of development.

Mu Changchun, the deputy head of the payment department within the central bank, emphasized that a prototype digital currency (CBDC) was ready, and the department’s research group had fully worked out the blockchain architecture for him.

It is noteworthy that this statement was made shortly after the publication of the Libra documentation from Facebook . Thus, it is possible that the Chinese authorities saw a certain threat in the means of payment from the world's largest social networks and accelerated the arms race.

So far, the NSC has not published any official document detailing the operating principles and goals of launching the CBDC, and information from open sources is fragmented and often contradictory.

Nevertheless, we have studied publicly available information, including statements by experts close to the NBK, and we invite readers to familiarize themselves with the key characteristics of Chinese digital currency.

China's goal to get ahead of Facebook Libra (USA)

According to Wolfi Zhao of CoinDesk , the NBK has recently stepped up its efforts to create a new payment medium in the hope of getting ahead of Facebook with its Libra initiative.

Away from the central office of the regulator, a special team from the Digital Currencies Research Laboratory is working on CBDC. Work takes place in a closed environment at least since the beginning of summer, therefore, the team is fully focused on the project.

As already mentioned, much of the information about CBDC is still a secret. Also conflicting is the information on the launch dates of the digital currency, as well as on the participation of large Chinese companies in the project.

However, it has recently become known that the NBK can provide a unique right to use digital currency to seven organizations:

  • the largest financial institutions in the country – China Construction Bank, Industrial and Commercial Bank of China, Bank of China, Agricultural Bank of China;
  • Alibaba and Tencent conglomerates;
  • Union Pay international payment system.

One of the sources close to the NBK emphasized that the list of organizations could be expanded.

It is noteworthy that Tencent soon denied its participation in the project, and the People's Bank of China did not confirm the information on the timing of the asset.

It is possible that CBDC is positioned as a kind of “Chinese response” to Libra. The latter, according to the representative of the State Administration on Foreign Currencies of the People's Republic of China, Sun Tianqi, can significantly affect cross-border capital flows and become an obstacle to the internationalization of the renminbi.

A similar opinion is shared by the former head of the NBK, an influential economist Zhou Xiaochuan . He stressed that Libra could pose a threat to Chinese payment systems and the national currency, and also advised the Chinese authorities to take appropriate "precautions."

According to some experts , the Chinese CBDC is designed not only to become legal tender in the country, but also to promote the internationalization of the renminbi, which is especially relevant against the backdrop of an escalation of the trade war with the United States .

Key Features of Digital Currency

In one study, the Bank for International Settlements (BIS) proposed the “Money Flower” model, which characterizes various types of digital currencies of central banks.

According to the BIS classification, the NBK’s digital currency can be public funds and digital tokens of the central bank . Based on the April statement by the deputy director of the NBK Research Institute for Digital Currencies, Di Ganga, CBDC will be most consistent with the two categories of “Money Flower” highlighted in yellow.

In other words, the currency issued by CBDC will be centralized, but at the same time publicly available. The payment instrument will be used not only by the general public in retail transactions, but also in large interbank operations, as well as in settlements on securities.

According to Binance Research analysts, it is the centralized issue designed to provide CBDC with legal tender status and increase the efficiency of the NBK's monetary transmission mechanism . The latter is vested with absolute control over the new means of payment.

The Chinese CBDC will handle a two-tier monetary system :

At the first level, the NBK interacts with commercial banks directly, issuing and withdrawing from circulation CBDC. At the second level , as is customary in traditional finance, commercial banks interact with the public and organizations.

“With a two-tier digital currency system, the People’s Bank of China could achieve a replacement for paper money without undermining the foundations of the existing monetary system, which is also built on two levels,” said researchers at Binance Research.

Thus, in its essence and the most general principles of circulation, the Chinese digital currency will not differ much from the usual fiat money.

Why the Chinese financial system CBDC?

The People's Bank of China plans to replace the M0 monetary aggregate with new means of payment, that is, paper money and coins in circulation.

This could have a positive effect on the following areas:

  • Retail payments – the portability of money would significantly improve and anonymity at the user level would increase (according to the NBK);
  • Distributed registry technology will make interbank clearing more efficient;
  • CBDC is able to increase the speed and reduce the cost of cross-border payments , which would contribute to the internationalization of the renminbi.

According to Binance Research, with regard to M1 and M2, the NBK is confident that these money aggregates have already been transferred to the digital field.

Other reasons for CBDC's release by China's central bank :

  • Lower operating costs . In existing systems, the issue and maintenance of cash requires considerable costs.
  • Improving the effectiveness of anti-money laundering (AML) . As you know, cash is actively used in illegal activities, and the movement of funds in digital currency is much easier to track.
  • More effective counteraction to the outflow of capital from the country – the problem has become much more urgent against the backdrop of trade confrontation with the United States, a slowdown in economic growth and the devaluation of the renminbi.

Thus, the NBK CBDC is nothing more than an improved and much better tracked M0 monetary aggregate, potentially capable of reducing the volume of shadow and dubious operations.

Another important point is that instead of the partial reservation traditionally used in the banking sector , the Chinese CBDC assumes 100% collateral. This is perhaps the most dramatic change in monetary policy, since the current rate of required reserves in China is only 15%. As a result, the banking system loses the money multiplier .

Other components of monetary policy will not undergo drastic changes. Overall, however, the CBDC will clearly increase the presence of the NBK in China's financial system, increasing its impact on the economy. This is, in particular, stated in the aforementioned BIS report.

Holders of the new digital currency will not be charged interest, as is the case with deposits. Consequently, CBDC will be a highly liquid means of payment and, unlike funds held in bank accounts, free from credit risks.

Digital RMB Specifications

Binance Research experts argue that CBDC’s circulation mechanism involves the possibility of payments without having to open a bank account.

Coins will be stored in digital wallets, and the system itself will rely on cryptography and distributed ledger technology (DLT). Nevertheless, there are very few technical details in this regard. However, most likely, CBDC will be available through mobile applications, personal computers and smart cards .

As already mentioned, the digital currency will operate within the framework of a centralized two-tier system, the fundamental element of which will be the NBK. However, it is not yet clear whether the second level of this system will be based on DLT.

“Since the management of the second level will be delegated to financial institutions, the Chinese CBDC could potentially operate on the basis of several networks simultaneously ,” said Binance Research researchers.

Announcing the final stage of work on a new means of payment, Mu Changchun emphasized that CBDC’s productivity would reach “at least 300 thousand transactions per second”. This indicator is not yet available to any of the existing blockchains. On the other hand, such high performance can potentially be achieved with the help of off-chain solutions and other technical tricks like sharding and sidechains.

Also, according to representatives of the central bank, CBDC can operate using smart contracts. The latter, however, will provide functionality that does not go beyond the "basic monetary requirements."

According to the Research Institute of Digital Currency at the NBK, Big Data technology will become one of the key elements of the new system.

According to the scheme, big data technologies will be used to combat money laundering, tax evasion and the financing of terrorism, as well as to evaluate payment behavior. Of course, this implies ubiquitous personal identification (KYC).

Apparently, the NSC and second-tier financial institutions will have the ability to freeze any CBDC account at any time if suspicious activity is detected. It is also likely that the personal data of users will be tied to their wallets, which completely eliminates anonymity.

In addition, according to recent information , the digital currency will appear in WeChat and Alipay payment systems. At the same time, it will be possible to use it without the Internet. Mu Changchun emphasized that some mechanisms will be similar to Facebook's Libra.

When is the launch?

According to a September 4 China Daily publication, CBDC closed testing with "some commercial and non-governmental organizations" has already begun.
An earlier publication of the same publication says that if successful, the project will start even before Libra. That is, this will happen no later than the first half of 2020, and according to Forbes , it could even happen in November.

As already mentioned, the first users of the Chinese currency will be large state banks, as well as corporations Alibaba, Tencent and Union Pay. One of the sources close to the NSC confirmed that the above organizations are definitely involved in the project. Nevertheless, a significant part of the information is confidential and much remains unclear, for example, what is their role in this initiative.

According to the Chinese state publication Global Times , at first the new system will be launched locally in the city of Shenzhen. Tencent Holding is also located there, which, together with local financial institutions, will continue to develop a new means of payment.

It should be noted that earlier the NBK research unit opened an institute in Shenzhen specializing in financial technologies and projects related to digital currencies. This institution is now actively recruiting various technical experts, including blockchain developers and cryptography specialists, who will also work in Beijing. In addition, the NBK division filed more than 50 patent applications detailing the possible features of Chinese digital currency.

The position of other countries in the issue of national digital currency

The possibilities of central bank digital currencies are being studied in many countries, but it is unlikely that at least one of them has advanced as far as China.

For example, recently the head of the US Federal Reserve (Fed) Jerome Powell said that his department monitors the area kriptoaktivov, but has no plans to produce its own digital currency. According to him, CBDC is not a priority topic for discussion at the Fed and in general consumer demand for such a means of payment is insufficient, because "users already have many payment options."

In Ukraine, there is a pilot project to introduce the Electronic Hryvnia platform (e-hryvnia). The National Bank of the country is studying the advantages and disadvantages of digital currencies and the potential demand for them from organizations and individuals.

The head of the Bank of Lithuania Vitas Vasiliauskas is convinced that CBDC can act as a means of exchange, payment and preservation of value. He is also confident that state cryptocurrencies are able to increase the efficiency of payments and settlements on securities and reduce various risks in the financial market.

Nevertheless, representatives of some countries are skeptical. For example, the head of the German Federal Bank, Jens Weidmann, believes that cryptocurrencies issued by central banks can destabilize financial systems and worsen the work of credit institutions, especially in times of crisis. In addition, the demand for CBDC may negatively affect the efficiency of the central regulator and contribute to a fundamental shift in the business model of banks.

Avenir Suisse Analytical Center invites the National Bank of Switzerland to create the so-called franc token. Experts are sure that the new coin will facilitate the trading of tokenized securities, increase the efficiency of international payments and create new business models.

However, the president of the Swiss National Bank Thomas Jordan said recently that the currencies tied to fiatnym steyblkoiny may adversely affect the effectiveness of monetary policy and create risks to the country's financial stability.

A Bank of Russia report , “Is there a future for digital currencies of central banks?” States that state-owned cryptocurrencies can lower transaction costs and also work well in low interest rates and low inflation. In addition, interest can be accrued to accounts at CBDC, making such coins an attractive means of preserving value.

On the other hand, the document separately notes that “to date, there is not one successful, fully functioning and accessible to the general public CBDC, including working on the basis of data storage using distributed registry technology.

In general, about 70% of central banks in the world conduct research on the possibility of creating state-owned digital currencies, but only a few of them have started implementing projects.


It is expected that the Chinese CBDC, designed to replace cash, will be provided with reserves in the ratio of 1: 1. Its issue will be exclusively the NBK and, therefore, the value of the currency will be based on the confidence of the population in the central regulator, the financial system and the economy as a whole.

A bank account is not required to use CBDC, but it is likely that verification of identity is required.

The digital currency will be traded as part of a two-tier monetary system:

  • central bank ↔ commercial financial institutions
  • commercial banks ↔ organizations and individuals.

The first level of the system is an exclusive (permissioned) blockchain. However, it is not yet clear on which technology the second level of CBDC is based.

The launch of the digital currency can provide a number of advantages from the point of view of the NBK:

  • The possibility of a more accurate calculation of macroeconomic indicators, for example, inflation.
  • Expanding the possibilities of collecting real-time information on the features of CBDC circulation, which may be useful for the implementation of monetary policy.
  • Prevention of money laundering, terrorist financing and tax evasion, in particular, through the use of Big Data.
  • Reducing information asymmetries between financial institutions and regulators.

In general, CBDC implies a much more significant role for the NBK in the economy and eliminates the financial confidentiality of users. At the same time, it is not completely clear under what circumstances funds in the wallets of Chinese users can be frozen.

On the other hand, completely rid of anonymity and a centralized CBDC can hardly be considered a direct competitor to existing cryptocurrencies such as Bitcoin, Litecoin, Monero, etc. The latter will increasingly compete with fiat money, which will cause serious changes in the monetary policy of regulators and banking systems of various countries, as well as further tightening the regulation of the crypto industry.

Publication date 09/10/2019
Share this material on social networks and leave your opinion in the comments below.


Wells Fargo Banking Holding creates stablecoin pegged to US dollar



U.S. financial giant Wells Fargo is working on a cryptocurrency pegged to the dollar. The company announced this in its press release .

According to the company, the future stablecoin will be used as part of its own blockchain platform. Its main focus will be cross-border payments between the company and its partners around the world. Moreover, other companies outside the US will be able to use cryptocurrency to complete transactions between themselves.

The decision to issue cryptocurrency in the company is explained by the need to reduce the cost of payments between different countries, as well as the acceleration of this process. The current mechanisms cannot be called bad, but they are already outdated: high commissions, terms of several days per transaction – all this cryptocurrency can leave in the past.

Wells Fargo assures that their stablecoin will provide almost instant payments, and the process of their implementation will become much simpler. Next year, the company will begin a pilot project during which the cryptocurrency will be tested in test mode. Initially, only dollars will be available for transfers, but in the future it is planned to add support for many other currencies.

Wells Fargo is not the first bank that intends to launch its cryptocurrency, but it is not only one of the largest banks in the world and in the USA, but also one of the most expensive companies in the world. The arrival of such a player will show other companies that without their own digital currencies and blockchain ecosystems, they will have nothing to do in this market.

Publication date 09/19/2019
Share this material on social networks and leave your opinion in the comments below.

Continue Reading


North Korea plans to launch its own cryptocurrency



North Korea is creating a cryptocurrency with which the country will be able to avoid international sanctions.

It is assumed that the cryptocurrency development project is at an early stage. Its goal is the same as that of the Venezuelan project – last year the topic of developing the state’s national digital currency, Petro, was actively discussed. A cryptocurrency that does not yet have a name will be similar to the technology used by BTC or altoins. Currently, the team that is working on the project is studying products that could be tied to cryptocurrency. It is known that the payment instrument will not be exactly supported by the national currency of North Korea.

Experts believe that North Korea has enough opportunities and developments to present a good cryptocurrency. So, we can assume that the state will be able to improve its position in this way.

Continue Reading


The head of the SEC said when Bitcoin will appear on large traditional exchanges

Chairman of the US Securities and Exchange Commission (SEC) Jay Clayton said that bitcoin needs more regulation for listing on large exchanges. It is reported by CNBC. “If investors believe that Bitcoin pricing is as strict as on the Nasdaq or the New York Stock Exchange, then they are very mistaken. We must get to the point where we are sure […]



Chairman of the US Securities and Exchange Commission (SEC) Jay Clayton said that bitcoin needs more regulation for listing on large exchanges. It is reported by CNBC .

“If investors believe that Bitcoin pricing is as strict as on the Nasdaq or the New York Stock Exchange, then they are very mistaken. We must get to the point where we are sure that trade is regulated correctly , ”he stressed.

We are talking about listing conditions for bitcoin itself, and not derivatives, such as CME futures.

Recall, Clayton said earlier that some progress on Bitcoin ETFs has been achieved. VanEck and SolidX have withdrawn their application.

Subscribe to BlockchainJournal news on Telegram: BlockchainJournal Feed – the entire news feed, BlockchainJournal – the most important news and polls.

<< aside id = "unisender_subscribe_form-10" class = "widget unisender_form">

Continue Reading

Name Price24H (%)
Bitcoin (BTC)
Ethereum (ETH)
Bitcoin Cash (BCH)
Stellar (XLM)
Litecoin (LTC)
Cardano (ADA)
Tether (USDT)
Monero (XMR)


Copyright © 2018