The central bank officially announced the full picture of the digital renminbi, and you should understand these characteristics

This article is sourced from BlockBeats, authored by 0x49.

On July 16, the People's Bank of China officially released the "White Paper on the Research and Development Progress of China's Digital Renminbi" (hereinafter referred to as the "White Paper"), marking the first time the official overview of the digital renminbi has been published since its conceptual emergence and pilot testing over the past seven years.

Since the establishment of the legal digital currency research group by the People's Bank of China in 2014, and the establishment of the Digital Currency Research Institute in 2016 to build a prototype of digital currency, the research and testing of the digital renminbi has basically completed top-level design, functional development, system debugging, and other work, following the principles of stability, safety, controllability, innovation, and practicality. As of June 30, 2021, the pilot scenarios for the digital renminbi have exceeded 1.32 million, covering areas such as utility payments, dining services, transportation, shopping, and government services. Over 20.87 million personal wallets and over 3.51 million corporate wallets have been opened, with a cumulative transaction count exceeding 70.75 million and a total amount of approximately 34.5 billion yuan.

In the field of central bank digital currencies, China has completely taken the lead over other countries.

Domestic users are already accustomed to electronic payments, so when the digital renminbi appeared, the biggest question was, "What is the difference between digital renminbi and Alipay or WeChat Pay?" or "How is digital renminbi different from the current renminbi?"

In fact, digitizing the renminbi has completely expanded its conceptual space. To help everyone gain a more comprehensive understanding of the digital renminbi, BlockBeats has summarized the key points from the "White Paper":

Digital renminbi is the digital form of legal currency and does not accrue interest.

Digital renminbi is a legal currency issued by the central bank, primarily positioned as a cash-like payment certificate (M0), which will coexist with physical renminbi for a long time.

Previously, Randal K. Quarles, Vice Chairman for Supervision of the Federal Reserve, stated in a speech titled "Parachute Pants and Central Bank Digital Currency" that the Federal Reserve's CBDC could pose significant challenges to the structure of the U.S. banking system, potentially replacing commercial banks as the primary source of funding for the public. This issue does not exist with the digital renminbi.

Digital renminbi is different from bank deposits; since it is positioned as a cash-like payment certificate, it does not accrue interest. At the same time, digital renminbi is a liability of the central bank to the public, supported by national credit, and has legal tender status. The bankruptcy compensation limit for commercial bank deposits is 500,000 yuan. The non-interest-bearing nature of digital renminbi helps reduce competition with commercial bank deposits and other low-risk financial assets, minimizing potential impacts on monetary policy.

Digital renminbi is a retail-type central bank digital currency, primarily used to meet domestic retail payment needs. Unlike cryptocurrencies, digital renminbi is not decentralized but adopts centralized management and a two-tier operation. The two-tier operation refers to the People's Bank of China dealing with commercial banks, and commercial banks or commercial institutions dealing with the public.

Members of the public without bank accounts can also enjoy basic financial services through digital renminbi wallets. Foreign residents temporarily in China can open digital renminbi wallets without establishing a bank account in mainland China, meeting their daily payment needs while in China.

Digital renminbi features controllable anonymity, low cost, and programmability.

Controllable anonymity:

The previously much-discussed anonymity of digital renminbi has been explained by the central bank in the "White Paper." Digital renminbi follows the principle of "small amount anonymity, large amount traceable by law." The transaction information collected by the digital renminbi system is less than that of traditional electronic payment models, and unless explicitly stated by laws and regulations, it is not provided to third parties or other government departments.

Digital wallets can be categorized into different levels based on the strength of customer identity verification. Operating institutions can assign different single transaction, daily transaction, and balance limits to various wallets based on the strength of real-name verification, with the lowest privilege wallet not requiring identity information. Users by default open the lowest privilege anonymous wallet, which can be upgraded to a higher privilege real-name wallet as needed.

Tools like WeChat Pay and Alipay have often been criticized by users for excessive collection of user information, while using digital renminbi for payments can avoid this situation.

Low cost:

The management method for physical renminbi is consistent, and the People's Bank of China does not charge designated operating institutions for exchange and circulation service fees. This means that interbank transfers of digital renminbi do not require payment of handling fees. Designated operating institutions also do not charge individual customers for the exchange and return service fees of digital renminbi, effectively allowing users to exchange digital renminbi without service fees.

Programmability:

Digital renminbi achieves programmability through the loading of smart contracts that do not affect the currency's functionality, allowing for automatic payment transactions based on conditions and rules agreed upon by both parties, while ensuring safety and compliance, thus promoting innovation in business models.

In the foreseeable future, the programmability of digital renminbi may change some commercial transaction and supply chain rules.

Digital renminbi will choose technology based on market demand.

In the "White Paper," the central bank did not directly state that digital renminbi uses blockchain technology but pointed out that the choice of technology route for digital renminbi is a long-term evolution, continuous iteration, and dynamic upgrade process, regularly conducting assessments based on market demand and continuously optimizing and improving.

Currently, the digital renminbi system adopts a distributed, platform-based design, integrating trusted computing, hardware-software integrated dedicated encryption, and other technologies, combining the characteristics of centralized and distributed architectures to form a hybrid technical architecture that coexists with stable and dynamic modes, integrating centralized and distributed development.

In the future, digital renminbi may facilitate cross-border settlement through multi-currency legal digital currency bridges.

During the research and pilot phase of digital renminbi, the People's Bank of China actively participated in multilateral exchanges with international organizations such as the Financial Stability Board (FSB), Bank for International Settlements (BIS), International Monetary Fund (IMF), and World Bank (WB), discussing cutting-edge topics related to legal digital currencies with monetary and fiscal regulatory departments from various jurisdictions, multinational financial institutions, and top global universities. The central bank has also actively participated in the formulation of standards for legal digital currencies within international organizations, jointly building an international standard system.

The Digital Currency Research Institute of the People's Bank of China has signed a memorandum of cooperation with the Hong Kong Monetary Authority and has joined the multi-currency legal digital currency bridge (mCBDC Bridge) project led by the BIS Innovation Hub, exploring legal digital currency-related practices together with the Hong Kong Special Administrative Region, Singapore, and other BIS innovation centers and central banks.

Digital renminbi is not the same as Alipay or WeChat Pay.

This is the question everyone is most concerned about.

Digital renminbi exists in a different dimension from general electronic payment tools like Alipay and WeChat Pay, being both complementary and different. General electronic payments are a third-party payment method, with commercial banks storing currency for settlement, which carries a very small probability of bankruptcy risk and lacks legal tender status, allowing users to refuse to accept Alipay or WeChat Pay. Digital renminbi has legal tender status, and users cannot refuse to accept it, and digital renminbi can achieve offline payments with a higher level of security and limits than Alipay and WeChat Pay.

The design of digital renminbi takes into account the advantages of both physical renminbi and electronic payment tools, possessing characteristics such as immediate settlement and anonymity of physical renminbi, as well as the low cost, strong portability, high efficiency, and difficulty of counterfeiting of electronic payment tools.

While the Federal Reserve is still discussing whether a digital dollar is needed and Europe is considering the feasibility of a digital euro, China’s digital renminbi has already accumulated over 70.75 million transactions, amounting to approximately 34.5 billion yuan. China has already taken the lead globally in the field of digital currency.

The development and promotion of the digital renminbi system in China is a natural choice in the process of currency internationalization, fundamentally determined by economic fundamentals and factors such as the depth, efficiency, and openness of the monetary and financial market. Currently, the digital renminbi has the technical conditions for cross-border payments, but its usage scenarios are still primarily focused on meeting domestic retail payment needs. Perhaps in the near future, we will also see the presence of digital renminbi outside of China.