The Chinese central bank’s digital yuan pilot is slowly picking up steam.
According to a progress report published today, the People's Bank of China’s central bank digital currency (CBDC)—a digital version of a fiat currency—now has more than 20 million wallets and has processed 35.5 billion RMB ($5.4 billion) worth of transactions.
The new currency is the world’s largest CBDC project. It will complement, but not replace, regular cash, since paper money is still useful for many in the hugely diverse, 1.4 billion-strong country.
But programmable money carries its own advantages, and the bank reconfirmed that its new currency comes with “smart contract programmability.”
The PBoC said its digital yuan can be programmed with “smart contracts that do not impair its monetary function” and is based on “the premise of security and compliance.” A smart contact-powered digital yuan could allow for automated payments, the bank said.
Smart contract programmability has been part of the currency's design for several years. It's one of seven design characteristics the bank mentioned in its report, alongside low costs and anonymity, among others. The bank clarified that anonymity would be “managed” by law enforcement.
“The e-CNY [digital yuan] system collects less transaction information than traditional electronic payment [systems] and does not provide information to third parties or other government agencies unless stipulated otherwise in laws and regulations,” the report said.
The bank would set up “a firewall” to protect anonymity, block arbitrary information requests, and implement security and privacy protocols.
But it's nothing like crypto
While smart contracts were popularized by cryptocurrencies like Ethereum, China's new digital currency is nothing like a decentralized cryptocurrency. The PBoC said that decentralized currencies can’t be “used in daily economic activities” due to their "lack of intrinsic value, acute price fluctuations, low trading efficiencies and huge energy consumption.”
Crypto also poses potential risks to financial security and social stability, the report said—“especially global stablecoins” launched by private players to “tackle the relatively big price fluctuation concern of cryptocurrencies.”
Stablecoins are cryptocurrencies pegged on a 1:1 basis to fiat currencies, like Tether and USD. They’re similar in premise to CBDCs, except they aren’t state-run.
The PBoC’s report comes about a week after Fan Yifei, a deputy governor of the bank, said that the Chinese authorities are “quite worried about [stablecoins]” and “have taken some measures” against them.
He didn’t specify what measures the bank has taken but said that the pace of progress in payment systems is “very alarming,” and that the bank is working against monopolies and “disorderly expansion of capital.”
Last month, China’s capital city of Beijing held a lottery for its digital yuan. The residents could win a total prize pool of 40 million renminbi ($6.2 million).
Perhaps China’s new CBDC isn’t so different from crypto projects that airdrop their currencies to create a bit of buzz.
Editor's note: This story was updated to reflect that the capability of the digital yuan network to support smart contracts was not new information. The PBOC shared this capability in 2019. It was also updated with additional figures from the PBOC's report.