China completes digital yuan design

The People’s Bank of China says it has completed the “top-level design” and testing of its yuan-backed digital currency, meant to partially replace cash in the country.

The country’s central bank reported the progress in a recent paper, saying that it had completed “top-level design, standard formulation, functional research and development, and joint testing of its digital currencies,” according to a report in Sina Finance (Chinese language) yesterday.

The next steps in the country’s digital currency/electronic payment, or DC/EP, project—which it has been hammering away at for five years—are to “follow the principles of stability, security and control” and to “select pilot verification areas, scenarios and service scopes,” said Mu Changchun, the head of the PBOC’s digital currency research institute, according to a report in Blockchain China (Chinese language).

The news is the latest update on the digital yuan from the PBOC, which has been typically vague and secretive about the work. So far, the central bank has yet to specify a formal launch date for its digital currency, although rumors have been swirling for months that a launch is imminent.  

Mu promised to protect users’ privacy, but at the same time, made it clear complete anonymity wasn’t likely to happen. 

“We will keep the balance between the ‘controllable anonymity’ and anti-money laundering, CTF [counter terrorist financing], and also tax issues, online gambling, and any electronic criminal activities,” said Mu. “That is a balance we have to keep, and that is our goal.”

Last month, the PBOC said it planned to pilot its DC/EP in the cities of Shenzhen and Suzhou. Other cities may also see trials.

Race to be first

China is aiming to be the first country in the world to issue a central bank digital currency. A team within its central bank started hammering out the details of the project in 2014. The plan is not to create a new currency—which is what Facebook had in mind with its Libra stable coin project—but to partially digitize China’s existing cash in circulation. 

China is not the only country that is planning on issuing a digital currency. Most central banks are studying this, with some further down the road than others. France plans to test its digital currency in early 2020, and Sweden is working on an “e-krona,” while Mexico’s central bank has already launched CoDi, its version of a digital currency. 

Meanwhile, U.S. Treasury Secretary Steven Mnuchin said in December that he didn’t see a digital dollar before 2025. 

In a hearing before the House Financial Services Committee on Dec. 5, Mnuchin said he and Federal Reserve Chairman Jerome Powell have discussed an American central bank digital currency. 

“Chair[man] Powell and I have discussed this,” Mnuchin said in his testimony. “I think we both agree that in the near future—in the next five years—we see no need for the Fed to issue digital currency.”