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5 Facts You Need to Know About DCEP and China’s Digital Currency

By April 24, 2020 No Comments

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“DCEP” has become one of the buzzwords in the blockchain space recently as the trial interface of the digital yuan, offered by the Agricultural Bank of China (ABC), has grabbed a lot of headlines at home and abroad in recent weeks.

While the Facebook-backed Libra project has been downsizing from its original plan as it tries to woo global regulators, China has been scaling up its digital currency project and reportedly released its first DCEP application in Suzhou.

The bold moves from the crypto-unfriendly country seem to not only show that digital currency is becoming a global trend, it’s also solid proof that blockchain technology is going to be a critical part of the global financial system in the future.

The ultimate question is, what is DCEP and why does China want to develop it? Now, sit back and enjoy as we dish out the five top facts that you need to know about this disruptive technology.

What is DCEP?

DCEP, aka digital currency electronic payment, is a central bank digital currency (CBDC) project led by the People’s Bank of China. The plan is part of the response to President Xi Jinping’s push to “seize the opportunity” of blockchain technology. The digital yuan is structured on a two-tier monetary system: (1) a central bank-issued CBDC for commercial banks and (2) a commercial bank-issued CBDC focused on the public.

Apparently, the screenshot that shows the interface from ABC suggested that the trial has been focused on consumer usage.

Why China developed it

China’s DCEP project started way back in 2014 when the PBOC founded a research team specializing in cryptocurrency and established the Research Institute of Digital Currency in 2017.

You may wonder why the Chinese government developed its digital currency when mobile payments are already part of daily life for many Chinese citizens. The Deputy Director of the PBOC’s payments department, Mu Changchun, gave his answer.

“It is to protect our monetary sovereignty and legal currency status. We need to plan for a rainy day.”

Mu also emphasized that DCEP is not designed to copy Libra, and it will be pegged 1:1 to RMB.

The Pros

Compared to physical money, DCEP has its distinctive pros. For the government, a digital yuan could eliminate money printing costs.

For commercial banks, DCEP could facilitate more money transactions with lower costs, increase business innovation while minimizing the risks.

For the public, DCEP could save them from indirect transaction fees for interbank transfers. Domestic and cross-border payments will also involve less friction.

Of course, there may be many more advantages that DCEP can bring, and we should embrace the change as well as the future of currency.

What it means for the cryptocurrency markets

Perhaps that is the biggest concern of the crypto markets. We can imagine that the launch of DCEP will broaden society’s acceptance of blockchain technology and diminish people’s prejudice against it. With a better understanding and real-life applications of this ground-breaking technology, the traditional investment community may become more open to blockchain investments. This potential shift of attitude could bring a positive impact to the existing crypto space. Although there are concerns over the current stablecoin space, however, it seems that it is too early to access how DCEP could affect the stablecoin markets.

What we can expect in terms of CBDC

We can foresee that there will be more countries and regions jumping on the CBDC bandwagon after China, and the US could be one of them. In light of the recent Covid-19 pandemic, some US lawmakers have discussed how a digital dollar could be part of the stimulus package.

The ECB also has been taking a more proactive approach when it comes to the study of having a blockchain-backed EUR.

Meanwhile in Hong Kong, former HKMA chief executive suggested that a digital currency covering the four regions (China, Japan, Korea, and Hong Kong) should be promoted. He believes that this initiative will not only diminish the inconvenience of cross-border payment for enterprises but also tackle the economic stagnation in east Asia.

Conclusion

Now that the official launch of DCEP seems to be just around the corner, we should prepare ourselves for a more digital, convenient and better future.

This post originally appeared on OKEx Academy. Read more.

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