China has a love-hate relationship with cryptocurrency. Despite being the biggest Bitcoin mining center in the world, crypto usage is facing strong regulations. Meanwhile, the government of PRC is incentivizing blockchain development and rolling out the national CBDC. 

To start with the Chinese Central Bank Digital Currency (CBDC) project is officially called China’s Digital Currency Electronic Payment (DCEP) system.

On October 24, 2019, President of the People’s Republic of China – Xi Jinping – announced in a speech to the political bureau of the Central Committee that “[China] must take the blockchain as an important breakthrough for independent innovation of core technologies, clarify the main direction, increase investment, focus on several key core technologies and accelerate the development of blockchain technology and industrial innovation”.

Although China admits the potential of blockchain technology, the country authorities have always been skeptical and restrictive about cryptocurrencies. Nevertheless, President Xi Jinping announced embracing blockchain technology, and the creation of digital currency was very welcomed by the blockchain community.

The People’s Bank of China started testing the prototype of the national digital currency way bank in 2017. The project went into hibernation until the last year when Xi’s comments dragged the research and development out of the hay. At the end of April 2020, it was announced that the central bank is testing first digital wallets in four Chinese cities.

Digital Currency Electronic Payments (DCEP) is the national digital currency of China that is built with blockchain and cryptographic technology. The currency will be pegged 1:1 to the Chinese Yuan (CNY). The main purpose of the project is to globalize Chinese RMB, which might lead to the global financial reset, as it might scoot over the US dollar from its position of the global currency. 

The idea to start the project came shortly after Facebook announced its plans to release Libra. China state that any currency issued by a corporation poses risks to sovereignty and digital currencies should only be issued by governments and central banks. In sign with this, Chinese CBDC is not a third party stable coin, like Tether (USDT), but is created and sanctioned by the government, issued by the People’s Bank of China, and is the only legal digital currency in China. 

It is expected that the project will not only cut banking costs significantly, but the distributed ledger will add a strong degree of transparency and clarity in all funds within and outside of the country. 

Chinese CBDC is a centralized currency built with decentralized technology. It runs on a private blockchain network that is fully accessible and controlled by the central bank of China. In addition, the country has already set up a number of blockchain development zones to support this and other projects in the industry.

The currency is not for speculation. It is different to Bitcoin or stablecoins.

Mu Changchun, the head of the People’s Bank of China

While China’s decision to roll out its own digital currency might seem like Chinese crypto spring, President Xi Jinping made it clear that the country believes in the development of blockchain technology, not cryptocurrencies. 

The People’s Bank of China plans to open DCEP and start issuing tokens in 2020. It’s not officially listed on any cryptocurrency exchanges. With the already existing payment systems like WeChat and Alipay there is little need for cash in the country. DCEP will work closely with WeChat pay and Alipay to integrate the digital currency with the two largest providers facilitating billions of retail users. One of the main differences from the fiat Yuan, is that by storing its digital version no internet will be generated, as its main purpose is for in and out direct payments.

Following China in pursuit of tech domination, several European countries have already introduced their CBDC proposals and entered the race to pioneer the digital Euro research and development.