Financial company Huatai Securities published a report on the details of the payment system and digital currency of the Central Bank of China under development called DCEP (Digital Currency Electronic Payment).
“Unlike digital currencies within a decentralized system such as bitcoin, DCEP uses a centralized management system,” the document says.
DCEP as an electronic form of the renminbi will be controlled by the People's Bank of China (NBK) but issued through several commercial banks. The NBK will become the center that creates digital currency and approves transactions.
Commercial banks will request clients to issue DCEP and conduct transactions.
Such a two-tier system is similar to that used for issuing fiat. But with digital currency, the CB and government will be able to control all transactions, which cash payments do not provide.
DCEP is designed to replace cash in circulation (M0 unit), unlike existing electronic payment systems, for example, Alipay, which are based on the digitization of funds in commercial bank accounts (M1 and M2 units). The digital yuan will provide the opportunity for offline transactions.
DCEP is expected to help tackle the shadow banking problem in the country. It can also be used to strengthen control over citizens in the PRC Social Credit System.
Transaction information will also be encrypted. To protect against hacking, it is planned to use authentication technology to ensure that the funds are spent by the owner.
DCEP-related data should be managed by three centers, which will:
- manage the use of an asset,
- register users,
- analyze the financial data generated by the system.
The digital yuan will provide a certain level of confidentiality only the central bank will be the owner of complete information about transactions.
Earlier, the NBK said that the development of digital currency is at the final stage. However, experts called on the regulator not to rush with the release of CBDC, but to strengthen international cooperation in the field of regulation of crypto assets.