DCEP: China’s National Digital Currency Overview

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What is DCEP

Digital Currency DCEP (Digitial Currency Electronic Payment, DC/EP) is a national digital currency of the China built with Blockchain and Cryptographic technology. The currency is pegged 1:1 to the Chinese National Currency – the RenMinBi (RMB). The overall objective of the currency is to increase the circulation of the RMB and international reach – with eventual hopes that the RMB will the a global currency like the US Dollar. China has recently established an initiative to push forward Blockchain adoption, with the goal of beating competitors like Facebook Libra – a currency which Facebook CEO Mark Zuckerberg claims will become the next big FinTech innovation. China has made explicit that Facebook Libra poses a threat to the sovereignty of China, insisting that digital currencies should only be issued by governments and central banks.

DCEP is a currency created and sanctioned by the Chinese Government. It is not a 3rd party stable coin such as Tether’s cryptocurrency token “CNHT” which is also pegged to the RMB in a 1:1 ratio. DCEP is the only legal digital currency in China (cryptocurrencies such as Bitcoin are not legal tender in China).

Huang Qifan (Chairman of the China International Economic Exchange Center) said they have been working on DCEP for five to six years now and is fully confident it can be introduced as the country’s financial system. It’s currently being rolled out, with the People’s Bank of China (PBoC) issuing the currency.

DCEP will have two layers of cryptographic security

DCEP can achieve real-time collection of data related to money creation, bookkeeping, etc, providing useful reference for the provision of money and the implementation of monetary policies

Huang QiFan at the China Finance 40 Forum

Merchants must accept DCEP

The central government has signaled that all merchants who accepted digital payments (such as Apple Pay, AliPay and WeChat) pay must accept DCEP. This will give DCEP a large nation wide acceptance in China, with every merchant obligated to participate or face a potential loss of their business license. This will make DCEP the most accepted digital currency in the world.

Deployment and Distribution

DCEP will initially be distributed to all commercial banks affiliated with the Chinese Central Bank such as ICBC and Agriculture Bank of China. The rollout of DCEP will be similar to that of physical yuan. The significance of DCEP is that it’s designed as a replacement of the Reserve Money (M0) system, cutting back the cost and friction of bank transfers. Huang pointed to outdated systems like SWIFT is both slow, inefficient and costly for inter-bank payment transactions. This initial deployment will serve as an official production test for the currency system, where the network and security will be validated. In the second phase, DCEP will be distributed to large fintech companies such as Tencent and Alibaba to be used in WeChat Pay and AliPay respectively.

DCEP is a centralized, sovereign issued currency. It is not possible to mine DCEP or stake on the DCEP network.

DCEP national currency summary

Is DCEP backed by Gold?

On a recent episode of Kitco News, journalist Max Kaiser claimed that China will launch a gold backed cryptocurrency, with the intention of destroying the USD as a reserve currency. He added that China has already amassed as much as 20,000 tons of gold.

NFC Contact based payment

According to Official Sina Blockchain, DCEP will have NFC based payment options that don’t require devices to be online during the transfer. This will be poised as a direct replacement of paper money, as DCEP will be usable in areas without internet coverage. In addition, DCEP doesn’t require the mobile device to be bound to a bank account – meaning the unbanked population will also have access to the digital currency.

Mandate to adopt Blockchain

China has established a country wide initiative to push forward Blockchain Adoption. President Xi JinPing has mandated that the ‘country’s development of blockchain technology should be sped up ‘ on Oct 24th in front of the Political Bureau. This speech has also been echoed by Li Wei, head of the People’s Bank of China. China has adopted the “Blockchain, not Cryptocurrency”, whereby the benefits of Blockchain is highlighted. On the other hand, cryptocurrencies that are native to Blockchain are suppressed as Cryptocurrency Exchanges and ICOs are banned in the country.

DCEP is a Centralized Currency

DCEP is a digital currency that is run on a centralized private network – the Central Bank of China has complete access and control of the currency. This is a huge contrast to Bitcoin, which has an open decentralized network where there is no centralized leader. In the case with DCEP, the Central bank of China has the ability to create or destroy DCEP.

Huawei Pay to Support DCEP

Owing to the widespread use of Huawei phones in China and the company’s close ties with the Chinese Government, Huawei is rumoured to be the first adoptee of DCEP. New leaked images of the Huawei Pay app shows direct connections to Chinese merchant banks and ability to withdraw DCEP.

Trading DCEP, What platforms support DCEP

Mere hours after DCEP has been announced, various (potentially scam) Chinese exchanges have listed IOUs or knock-offs clones of DCEP. It’s important to know that DCEP is currently only distributed to banks working with the PBoC and will not be available for the public. If you want to find out what are reputable exchanges, check out our top cryptocurrency exchanges guide. It is strongly recommended NOT to trade DCEP until it is officially released as there is no guarantee exchanges have access to the digital currency.

Knock-off clones of DCEP are already trading in (potentially) scam exchanges.

How to buy DCEP?

Currently DCEP is only available to other banks working with the People’s Bank of China. This will eventually open up to the general public in 2020.

Note: Previous publications have referred to the national currency as CBDC.

Sources:
https://www.asiacryptotoday.com/how-china-and-the-world-reacted-to-xi-jinpings-blockchain-comments
https://venturebeat.com/2019/09/15/wake-up-us-federal-reserve-china-just-showed-how-digital-currency-is-done/
https://www.reuters.com/article/us-china-blockchain-idUSKBN1X704A
https://u.today/just-in-chinese-central-bank-to-launch-digital-currency-called-dcep
https://beincrypto.com/chinas-dcep-to-be-worlds-first-national-digital-currency-says-ccie-vice-chairman/
https://qz.com/1710850/chinas-central-bank-could-gain-from-a-digital-yuan-cbdc/

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