Key message: the People’s Bank of China (PBoC) has taken the next step to officially introduce a central bank digital currency, or CBDC. It has released an official whitepaper on the digital yuan (also called e-CNY), confirming that CBDC is designed to be programmable using smart contract features.
PBoC and CBDC
China has been working on CBDC for a long time. There have been recent reports of red envelopes and various pilot tests, but work on the digital currency itself began in 2014.
The PBoC has confirmed that one of the seven main features is programmability, the first time the bank has ever officially clarified this. This programmability will be gained through the deployment of smart contracts, as they do not disrupt monetary functions. Assuming security and compliance with regulations, smart contracts allow payments to be made automatically according to predefined conditions. It should be added, however, that this description contradicts what the Bank has stated in 2018 and 2019.
The latest digital currency test, which is taking place in Chengdu, is already experimenting with limited use of e-CNY programmed only for certain purposes. In this test, the e-CNY is set to only be used to buy subway and bus tickets and bike-sharing services. The dozens of patents allowed by the PBoC also demonstrate e-CNY’s technological capabilities for tracking transactions – now to ensure that funds are spent for only thoughtful purposes.