The e-CNY network remains small scale-for now According to former PBOC governor Zhou Xiaochuan, institutions that issue e-CNY will also bear some responsibility for compliance with payment rules and regulations, such as those related to China’s capital controls (regulations on the transfer or use of yuan outside of China) and sanctions (rules that prohibit companies from doing business with or serving particular persons). Reportedly, the first is the certification center, which will keep a database that maps real identities against all digital wallet users the second is the registration center, which will track e-CNY ownership and transactions and the third is the big data analysis center, which the central bank will use to monitor payment flows for financial risks and detect illegal behaviors. The e-CNY network’s “three centers” are all reportedly PBOC entities. “One coin” refers to the e-CNY unit of currency, which researchers at one major state-controlled financial institution explain is essentially an “encrypted digital string representing a specific amount that is guaranteed and signed by the central bank for sale.” The “two databases” refer to (1) the central bank’s ledger that keeps track of all e-CNY outstanding and (2) all the e-CNY ledgers maintained by the network’s lower tier either locally or on the same cloud used by the central bank. The entire e-CNY network is, according to the China Banking Association’s chief economist, built upon the concept of “one coin, two databases, three centers” (一币,两库,三中心). It controls the supply of e-CNY and manages e-CNY payments between the lower-tier banks. One tier, the lower tier, is (for now) exclusively made up of a few commercial banks that can facilitate the exchange of e-CNY with cash or bank deposits. Robert Greene is a nonresident scholar at the Carnegie Endowment for International Peace’s Technology and International Affairs Program and Asia Program, focusing on Chinese financial sector trends and on topics at the nexus of cyberspace governance, global finance, and national security. Other types of wallets-including hardware wallets, essentially reusable prepaid cards that can either be separate from or part of a hardware device such as a mobile phone-that are not linked to a particular bank, may offer more privacy, and hold small amounts of e-CNY are currently being piloted. Users can hold e-CNY in a mobile phone “e-wallet” app, and the ability to purchase e-CNY is currently set to be possible through China’s six large state-owned banks and the bank affiliates of Tencent and Ant Group, which control China’s two dominant digital retail payment platforms. One e-CNY is worth the same as one yuan in paper currency, and each will be exchangeable with the other. Like paper Chinese currency-another form of legal tender-its issuance is facilitated by the PBOC. What is China’s e-CNY and how does it work?Īs one PBOC official recently explained, the e-CNY is legal tender, meaning no entity in China can refuse it. national security community should watch the e-CNY’s rollout closely. Central bankers should consider the trade-offs of state-sponsored digital currencies, and the U.S. One big question is whether Beijing will allow e-CNY transactions with U.S.-sanctioned entities such as affiliates of Iran’s Islamic Revolutionary Guard Corps. The growth trajectory, financial stability implications, and geopolitical consequences of the e-CNY will depend on how the PBOC and other state organs resolve important structural details regarding its underlying network. The e-CNY could also be used to navigate international transactions around payment systems and networks that can be shut off to Chinese financial institutions serving U.S.-sanctioned entities. In the coming years, the e-CNY will likely be deployed across China as part of Beijing’s focus on bolstering domestic financial security. Today, although many critical details of the payment system remain opaque or undecided, e-CNY pilots are rapidly accelerating in scope and size. The digital currency’s debut was the culmination of a six-year journey that began when China’s central bank, the People’s Bank of China (PBOC), announced its research into a “Digital Currency/Electronic Payment” system in 2014. In April 2020, electronic Chinese yuan (e-CNY) pilot programs launched in four cities.
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