China cites Bitcoin risks as justification for creating digital yuan

Key facts:

According to the PBoC, the appearance of cryptocurrencies led to the creation of this project.

This is the first whitepaper published by the People’s Bank of China on the digital yuan.

The People’s Bank of China published the first white paper on the digital yuan.

The information was released on July 16, 2021 through a working paper for the project of its digital currency, known as e-CNY. The document dates back to 2014 to explain the background, characteristics and development of the initiative that led to the progress of the digital currency. The financial institution explained that one of the main causes for creating the digital yuan was the appearance of cryptocurrencies, the risks and challenges that they transferred to the current financial system.

The PBoC wrote the following on this topic:

Adopting blockchain and encryption technology, cryptocurrencies like bitcoin are claimed to be decentralized and fully anonymous. However, given their intrinsic lack of value, sharp price fluctuations, low business efficiency, and huge energy consumption, they can hardly serve as currencies used in daily economic activities. Furthermore, cryptocurrencies are mostly speculative instruments and therefore pose potential risks to financial security and social stability.

The People’s Bank of China then noted that the development of the digital yuan was focused on addressing concerns about the fluctuation of cryptocurrency prices. The financial entity pointed out that this situation caused some commercial institutions to launch stableicons, thereby trying to stabilize their values ​​by tying them to sovereign currencies or other related assets.

The Bank warns that some commercial institutions may be thinking about launching global stableicons, which in their opinion, would bring risks and challenges to the international monetary system, as well as to the payment system and cross-border payments.

Statement of reasons for the creation of the digital currency

The first objective of this project, as stated in this document on page 4, is to diversify the forms of cash provided by the central bank to the public, meet the demand for digital cash and support financial inclusion.

As a second point, they will focus on supporting fair competition, efficiency and security of the retail payment service. The text explains that this initiative builds on existing electronic payment technologies and complements the existing system.

Its third purpose is to echo the international initiative and explore improving cross-border payment. The report ensures that it is preparing to take this step by exploring pilot tests that have been designed for this purpose, working together with central banks and monetary authorities to establish exchange, agreements and regulatory cooperation mechanisms on digital fiat currency online. .

Regarding the design of the plan, he explains the following:

Those without bank accounts can enjoy basic financial services provided through the digital currency wallet, and foreign residents temporarily traveling to China can open a wallet to meet daily payment needs without having to open an account. in a commercial bank.

Later, the document refers to the protection of consumer rights and interests. Highlights that authorized operators will adequately handle potential disputes and customer losses, in accordance with the relevant dispute resolution mechanisms.

The report also addresses matters related to regulatory matters. It indicates that one of its objectives is based on establishing management for the business, clear requirements for operators, implementing laws and rules to strengthen the protection of users and create a safe environment for the use of digital currency.

Digital currency and smart contracts

In the section on the design features of the digital currency indicates that one of its outstanding attributes is programming from the implementation of smart contracts. It literally says the following: «e-CNY obtains programming from the implementation of smart contracts that do not harm its monetary functions. Under the premise of security and compliance, this feature allows self-executing payments according to predefined conditions or terms agreed between two parties, to facilitate business model innovation ”.

The PBoC highlights that one of its objectives is to establish rules to strengthen the protection of users and create a safe environment for the use of digital currency. Source: CriptoNoticias

The 16-page document ends with how to mitigate the possible negative impact of digital currency on the economy and the financial sector. Its evaluation is being done through tests and practices in the pilot regions. He recalled that since June 30, 2021, the tests that have been carried out in several cities have registered 70 million transactions for an amount of 34.5 billion yuan. This figure is equivalent to USD 5.3 billion, through 20 million digital currency wallets to retailers and 3.5 million commercial e-CNY wallets.

It should be clarified that even though the PBoC has prepared this technical document, it does not say for when the launch of the digital currency is scheduled or other activities that you will carry out prior to its adoption in China.

However, everything seems to indicate, as CriptoNoticias reported in March of this year, that the Government of China is accelerating the development of the digital yuan to be used in the 2022 winter games. For this reason, it was working jointly with private companies in the development of software for the implementation of this currency.

The intention is that the people who attend the sports event, which will take place between February 4 and 20, 2022, can use the digital currency in hotels, restaurants, stadiums and other sports facilities.

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