China Working on a Digital Currency Electronic Payment, DCEP

Zhou Xiaochuan, governor of China’s central bank, said they are working on a currency called DCEP, DC for digital currency and EP for electronic payments.

The focus of the currency is the pursuit of convenience, speed, and security in payments, he said. However, this might not necessarily be a cryptocurrency.

This digital currency can be based on blockchain technology or distributed ledger technology, or it can be based on existing electronic technology, he said, before adding that the digital currency is technically inevitable, but it should pay attention to overall financial stability, prevent risks, and protect consumers at the same time.

The departing PBoC governor said, in what might be his last public remarks, according to a rough translation:

“It may be noted that the People’s Bank began organizing seminars on digital currencies more than three years ago. Then the Central Bank’s Digital Currency Research Institute was established.

The most recent action was to organize distributed R&D with the industry to carry out various programs, relying on markets  to work together to develop a digital currency…

A clear purpose is to study the application of digital currency to enable money to achieve a certain technical solution, essentially the pursuit of convenience, rapidity, low cost of the retail payment system, while taking into account security and protection of privacy…

The development of digital currency is the inevitability of technological development. In the future, the scale of banknotes may gradually shrink, even for a while…

In 2017, the People’s Bank of China organized research projects on digital currency and electronic payments, which were approved by the State Council…

This is a research and development plan. The digital currency will go to the testing stage after a certain degree…

The central bank has long paid attention to financial technology… this is our overall attitude toward science and technology. We are very concerned about the application of blockchain and distributed ledger technology. At the same time, these research and development should be more prudent…

Our argument is: It is good to study new things, but in addition to market power, we must consider the overall situation…

From the central bank’s point of view, inadvertent products are stopped first, then promising products are tested and certified for further promotion.

Therefore, the central bank’s approach was to stop ICOs at the end of August last year. Later it did not support bitcoin and renminbi transactions, and there was a bitcoin-like virtual currency as a payment instrument. Currently, the banking system does not accept or provide related services.

In terms of future supervision, we feel that it is dynamic and depends on the degree of endurance of the technology. It depends on the results of local tests. Therefore, it remains to be seen.”

PBoC said all the way back in 2016 that digital currencies are the future, with blockchain technology pretty hot in the country, but talent – which is very much in shortage – is fleeing.

They have gone full authoritarian recently, ordering WeChat to cut off the official accounts of previously global crypto exchanges based in China, such as OKCoin and Huobi.

They have banned all ICOs. Bitcoin as well as other cryptos are also effectively banned, although Chinese citizens keep using them as enforcing the ban is pretty much impossible.

While taking these draconian measures they are at the same time promoting the blockchain, seemingly unaware just how close knit the two are since all the talent and skill was derived from bitcoin or ethereum enthusiasts who first got their hands dirty on those public blockchains.

As such, we’ve called for a boycotting of China last year after they unexpectedly and without notice shut down the crypto exchanges due to the authoritarian behavior of the central government and due to their open hostility towards this space.

With their government now seemingly trying to encourage the application of the technology, but until they open their market, as the now departing governor asked them to, they’ll probably continue falling behind in this space.