Kiffmeister’s #Fintech Daily Digest (07/16/2021)*

China releases digital yuan white paper, confirming it is not synthetic CBDC

The People’s Bank of China (PBOC) published a white paper on its e-CNY central bank digital currency (CBDC). It confirmed that it will adopt a two-tier distribution model, whereby the PBOC issues the CBDC and commercial banks merely distribute it (i.e., it’s not a “synthetic” CBDC). The paper outlines the primary objectives of the digital yuan, the first being to ensure financial inclusion and provide a public good digital cash while physical cash usage declines. The second objective is to promote fair competition and interoperability between different forms of digital cash. 

The whitepaper states that the CBDC is “mainly” designed for domestic use, but it will be usable across borders, while acknowledging monetary sovereignty issues and the principles of no detriment and interoperability:

  • No disruption: CBDC supplied by one central bank should continue to support the healthy evolution of the international monetary system. CBDC supplied by one central bank should not disrupt other central bank’s currency sovereignty and their ability to fulfill its mandate for monetary and financial stability, and meanwhile should protect the legitimate rights of consumers and boost fair competition.
  • Interoperability: The development of CBDC should fully tap the role of the existing infrastructures and leverage Fintech so as to enable interoperability between CBDC systems of different jurisdictions as well as between CBDC systems and incumbent payment systems. In the meanwhile, its development should contribute to the orderly development of the payment system and guard against market fragmentation.

It differentiates the e-CNY from other digital payment tools as being legal tender, not requiring a bank account, supporting offline payments and providing managed anonymity (anonymity for small value and traceable for high value transactions). Low value wallets to be set up with only a mobile number. 

Consistent with physical cash, e-CNY holdings will not earn interest, and the PBOC does not charge authorized operators for exchange and circulation services, and the operators do not charge individual clients for the exchange of e-CNY either.

The paper says that E-CNY is an account-based, quasi-account-based and value-based hybrid payment instrument. It has a variable face value and its value transfer takes the form of cryptocurrency strings. However, all of this seems like gibberish to me, and I welcome opinions on what it actually means.

Finally, E-CNY is programmable using smart contracts that enable self-executing payments according to predefined conditions or terms agreed between two sides, so as to facilitate business model innovation.

*For those interested in intra-day updates and news that didn’t make the Daily Digest cut, please check out my Diigo fintech bookmarks:

2 thoughts on “Kiffmeister’s #Fintech Daily Digest (07/16/2021)*

  1. Any thoughts on the evolving carbon footprint compared to the lighter cost of chopping a tree and making physical paper? My question is (a) is it blockchain related? …and if so, then (b) will each additional transaction have an incremental and eventually significant energy cost to process and maintain record? …and perhaps even an annoyingly slow transaction-processing time years to come…?NB: Pardon any naiveté in the question, but this is new to me 😉

  2. If it's not based on proof-of-work (PoW) distributed-ledger technology (DLT) then its carbon footprint is likely smaller than that of physical cash. However, the paper is very vague about the underlying technology ("value-based, quasi-account-based and account-based hybrid payment instrument"). But the paper disses crypto-assets like Bitcoin on their energy consumption so even if one of the e-CNY channels is DLT-based, it's likely using a protocol like proof-of-stake (PoS) that uses way less energy than PoW. But on other occasions, PBOC officials have said that the e-CNY is based on traditional centralized-ledger technology, which is even more energy efficient, albeit not as resilient and robust as DLT-based payment systems.

Comments are closed.