China is planning a real-world pilot of its digital currency, the first phase of which could begin before the end of this year, according to a report from an influential Chinese financial news publication. That would support recent speculation that China is on the verge of becoming the first major economy to issue sovereign digital money.
Time to launch: In August, an official from the People’s Bank of China (PBOC) said the currency, which China has been developing for several years, was “close” to being issued. The new report, from the financial news outlet Caijing, outlines specific next steps. It says the PBOC could launch a small-scale experiment in Shenzhen before the end of the year and then scale it up in 2020. In addition to Shenzhen, the pilot will take place in the eastern city of Suzhou, according to Caijing. If the tests go well, presumably the currency will go live soon afterward.
Details, details: The Caijing report seems to confirm several details about the forthcoming currency system, called digital currency electronic payment (DCEP), that have appeared in news reports during the past several months. For instance, it confirms that the PBOC will partner with commercial banks to issue the currency, and that during the initial phase the banks will compete on how best to implement it. It says tests will likely include seven state-owned firms: the four largest commercial banks and three big telecom companies. According to the news report, the tests will involve real-world service scenarios in the areas of transportation, education, and medical treatment.
Goodbye, cash … The report also reiterates that the PBOC means for DCEP to be a direct replacement for physical cash.
In fact, Chinese banknotes and coins are already quickly being replaced by mobile payments, particularly via Alipay and WeChat Pay, the QR-code-based apps that have become ubiquitous in the span of just a few years. It’s been estimated that mobile payments made up more than 80% of all payments in China in 2018, up from less than 20% in 2013.
… goodbye, privacy? Mu Changchun, the head of the PBOC’s digital currency research institute, has said the DCEP will be compatible with Alipay and WeChat Pay. He also said it can be used without an internet connection. Some of the biggest questions pertain to privacy and anonymity, and how much access the government will have to transaction information. The new report from Caijing repeats something Mu has also said before: that the DCEP will offer users at least some degree of “anonymity.” It does not, however, explain how that might work.