Today we are going to talk about the digital currency that China introduced to the market, the DCEP, also known as digital yuan or even as crypto-yuan.
In April 2020 China announced a pilot plan to test a new digital currency that it had been preparing for years, it is the so-called digital currency electronic payment.
According to The Guardian newspaper, China’s central bank reportedly stepped-up development of what would be the first digital currency operated by a large economy, conducting tests in several of its cities.
The Chinese daily newspaper, for its part published the news that part of the salaries of Chinese government officials, in several cities have been paid using DCEP, as well as certain transport subsidies, with the aim of putting into circulation the new digital currency.
Digital Currency Electronic Payment (DCEP)
The easiest way to think about it, is how the digital version of the yuan, the legal tender in China, its value is tied one by one to the yuan, that is to say that each DCEP is equal to one yuan.
How is each DCEP produced?
Contrary to what happens with other cryptocurrencies, which are mined in a decentralized way, the DCEP is issued by the central bank of China, called the people’s bank of China.
Regional and local commercial banks have access to it, and through them the banks’ customers can obtain a digital wallet that they can use to make and receive payments using an application authorized by the popular bank of China.
The DCEP uses cryptographic technology to work, so technically speaking it can be called a cryptocurrency, however, it is very different from most cryptocurrencies, since it does not use blockchain technology in its entirety and its protocol is totally centralized and is totally controlled by the government of China.
What advantages could the DCEP have over the conventional yuan?
It is estimated that in theory using DCEP could be cheaper, currently WeChat Pay and Alipay, two private companies, belonging to Tencent and Alibaba, control the digital payments market, Tencent and Alibaba, remain a commission for each transaction, similar to the PayPal, visa or MasterCard in the West.
The Chinese state could eliminate the need for third-party intermediation, by offering wallets connected directly to china’s popular bank, transaction costs could be lower and go directly to the government.
The DCEP is designed to work without an internet connection, this is fundamental, since a country cannot afford a stagnation in case the internet stops working, since, even for a few hours this would imply huge losses.
It should be noted that this way of operating without internet, is because not all the country has internet coverage, especially in rural areas it is very important that you can use the payment system even without internet, for example, through bluethoot.