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China: Reactionary nature of digital yuan
  • Vitaliy_KiselevVitaliy_Kiselev

    China’s DC/EP (Digital Currency/Electronic Payment) is a two-tier R&D and pilot project, not a payment product. It may include several payment products that can be tried and promoted. These products have been named e-CNY, or digital CNY.

    The DC/EP is a two-tier operation system. The first layer is the central bank, the People’s Bank of China (PBC), and the second layer includes commercial banks, telecom operators and third-party online payment platforms. At present, China’s four major banks, i.e. Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China and China Construction Bank, as well China Mobile, China Telecom, China Unicom, Ant Group, and Tencent are at the second tier and have already started trial operation.

    The second-tier institutions should shoulder the following responsibilities. First, they must have sufficient capital to cushion risks. Second, they must follow due KYC (know their customer) procedures, and on top of which bear the responsibilities of anti-money laundering and data privacy protection. Third, they need to invest in technology and equipment, and ensure the continued operation of equipment.

    The central bank, being the first-tier entity, has the following duties:

    The first is to maintain the stability of the digital CNY. The central bank can achieve this goal by imposing capital or reserve requirements on second-tier institutions.

    The second is to build reliable settlement and clearing infrastructure. Theoretically, the central bank should also engage in R&D, but it should focus on the construction of reliable settlement and clearing infrastructure instead of digital currency products.

    Third, the central bank has the obligation to promote the interoperability of different payment products. The central bank should coordinate among payment products with different standards or parameters to improve their interoperability, a move that will benefit consumers.

    Fourth, the central bank must have emergency and contingency plans to deal with a dynamic system. In the event of either a system failure or an upgrade, contingency plans are needed to ensure no disruption to the payment function, otherwise the entire market may be affected. From this perspective, the central bank itself should also develop a digital currency that can play a substitute role in emergency.

    In general, in the two-tier DC/EP operating system, the central bank needs to design its role in a way that fully mobilizes the enthusiasm and strength of all other entities involved.

    http://www.cf40.com/en/news_detail/11481.html

    Note how they care about private banks, this is really bad sign.

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  • Vitaliy_KiselevVitaliy_Kiselev

    Now that China’s digital-currency efforts are gathering momentum, officials at the Treasury, State Department, Pentagon and National Security Council are bolstering their efforts to understand the potential implications.

    American officials are less worried about an immediate challenge to the current structure of the global financial system, but are eager to understand how the digital yuan will be distributed, and whether it could also be used to work around U.S. sanctions.

    The People’s Bank of China has rolled out trial issuance of a digital yuan in cities across the country, putting it on track to be the first major central bank to issue a virtual currency. A broader roll-out is expected for the Winter Olympics in Beijing next February, giving the effort international exposure.

    U.S. officials are reassured that China’s intentions aren’t to use the digital yuan to evade American sanctions, according to people familiar with the matter. The dollar’s current dominance in cross-border transactions gives the U.S. Treasury the power to cut off much of a business or even a country’s access to the global financial system.

    China’s officials have said the main intentions of the digital yuan are to replace banknotes and coins, to reduce the incentive to use cryptocurrencies and to complement the current private-sector run electronic payments system -- dominated by Ant Group Co.’s Alipay and Tencent Holdings Ltd.’s WeChat Pay. The PBOC has been working for years on the digital yuan, also called the e-CNY, having set up a specialist research team in 2014.

    ​​“To provide a backup or redundancy for the retail payment system, the central bank has to step up” and provide digital-currency services, Mu Changchun, the director of the PBOC’s digital-currency research institute, said at an event last month.

    The PBOC is also examining the potential for using the digital yuan in cross-border payments, launching a project studying the issue with a unit of the Bank for International Settlements along with the United Arab Emirates, Thailand and Hong Kong’s monetary authority.

    The Biden administration isn’t currently planning to take any action to counter longer-term threats from China’s digital currency. However, China’s plans have given renewed impetus to efforts to consider the creation of a digital dollar.

    Members of Congress have also been increasingly interested in a digital dollar, aware of China’s moves, and asked Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen about the issue in hearings earlier this year.

    A recent report from the U.S. Director of National Intelligence said the extent of the threat of any foreign digital currency to the dollar’s centrality in the global financial system “will depend on the regulatory rules that are established.”

    Danger this guys are feeling and fully right are they.

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