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Japan Aims to Curb the Potential Influence of China’s Digital Currency With Help From the US

Aiming to curb the potential influence of China’s digital currency electronic payment, its nation’s central bank digital currency, Japan is looking to release its own digital currency proposals today. According to Prime Minister Shinzo Abe, the country is also requesting support from the US Federal Reserve.

Norihiro Nakayama, the Vice-Minister for Foreign Affairs in Japan and the top member of the Liberal Democratic Party, the ruling party that drafted the proposals, said that he wishes the “Federal Reserve would partner with six other central banks including the Bank of Japan in studying digital currencies.”

As the US Dollar remains the world’s dominant currency, Nakayama added, “We sense the digital yuan is a challenge to the existing global reserve currency system and currency hegemony. Without the US, we cannot counter China’s efforts to challenge the existing reserve currency and international settlement system.”

Nakayama predicted that with the Belt and Road initiative, which includes a digital economic framework, the digital yuan is highly likely to become the standard of the digital economy.

The former head of financial settlements at the Bank of Japan, Hiromi Yamaoka said an interview that China is the competitor; “if the yuan is used more widely than the yen, it will lead to a decline in Japan’s economic power and influence in the mid to long term.”

This update came in just less than a day after the Federal Reserve Governor Lael Brainard said the reserve is looking to research on central bank digital currencies. He further suggested that the Federal Reserve is changing its attitude towards the possibility of a Fed digital currency.

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Japanese Lawmaker Urges Digital Yen Development to Curb China Dominance

Japanese Lawmaker, Kozo Yamamoto has called for the expedited development of Japan’s digital yen as the race to be the first nation with an operating central bank digital currency (CBDC) heats up.

Yamamoto who is Head of Bank and Finance Systems Research Commission at the Liberal Democratic Party (LDP), said that Japan should create a digital yen, “ within two to three years” according to a report publishedon Feb. 10 by Reuters.

Race for Digital Currency Dominance

The race for digital currency dominance began last year following Facebook’s push to launch its own cryptocurrency, now re-imagined as a stablecoin – Libra. With over two billion registered Facebook users, Central Banks across the world sat up and took notice and began to raise questions on whether nations will maintain financial control in the future.China’s state-owned bank, the People’s Bank of China (PBoC) has been reportedly charging full speed with its development plans in response to Facebook’s Libra.

According to Reuters, Yamamoto’s desire in the expediency of Japan’s CBDC development is to counter China’s own digital yuan development. He explained could spread quickly through the Belt and Road Initiative, and advance China’s digital hegemony. He said that plans for Japan’s CBDC should be included in the government’s mid-year policy guidelines – plans currently being drafted by his department.

Japan Calls on FED to Aid Six Bank CBDC Research

Aiming to curb the potential influence of China’s digital currency electronic payment, its nation’s central bank digital currency, Japan is looking to release its own digital currency proposals. According to Prime Minister Shinzo Abe, the country is also requesting support from the US Federal Reserve.

Norihiro Nakayama, the Vice-Minister for Foreign Affairs in Japan and the top member of the Liberal Democratic Party, the ruling party that drafted the proposals, said that he wishes the “Federal Reserve would partner with the six other central banks including the Bank of Japan in studying digital currencies.”

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China's Pursuit of Digital Yuan "Unswerving" in Wake of COVID-19 Global Pandemic, says Central Bank

China’s central bank has further galvanized its public commitment to creating the first central bank digital currency (CBDC), a digital version of the Yuan, at an annual meeting hosted last Friday by the People’s Bank of China (PBoC) vice-governor Yifei Fan.

A summary notice of the 2020 National Currency Gold Silver and Security Work Video and Telephone Conference released on April 4 outlined the People’s Bank of China priorities for the year ahead which reaffirmed its commitment to the digital Yuan which is also being called a Digital Currency Electronic Payment (DCEP).

According to the summary, the PBoC’s continuous improvements to cash systems and securities will be guided by Chinese Leader Xi Jinping’s new era socialism with Chinese characteristics. Per the release, “One is to strengthen the top-level design, unswervingly advance the research and development of legal digital currency, systematically promote the reform of cash issuance and return systems, and accelerate the promotion of banknote processing business, issuance of bank guards and issuance funds.”

This marks the third time that the DCEP has been raised at the annual meeting and the intensity of the language used seems to signal a strengthened commitment by the PBoC.

The DCEP Top-Level Design

So how will China create its digital currency? First of all, we know that the digital currency will not be running on a blockchain. After a review of the 50 patent applications submitted by the PBoC, it will be powered by a two-tier operating system and will not be fully decentralized.

According to Binance, the central bank DCEP will be backed 1:1 by Renminbi fiat, following a two-tiered structured system involving the central bank, commercial banks, and the retail market. The first layer consists of the PBoC issuing and redeeming China’s digital Yuan via commercial banks. The second layer is responsible for connecting the commercial banks with the retail market. The plan is to replace notes and coins in circulation, known as the M0 supply.

China’s central bank mentioned that their digital currency would be issued to seven institutions in the coming months, but that was last September.

Paul Schulte, who worked as the global head of financial strategy for China Construction Bank up until 2012 says that the largest and second-largest banks of the world, Industrial and Commercial Bank of China and Bank of China as well as the Agricultural Bank of China, along with Alibaba, Tencent and Union Pay will be receiving the digital currency first.

COVID Incentives

Although China’s digital Yuan project has been in development for years, given the effect of the coronavirus outbreak and its spreadability through surface contact, there may be added motivation to move beyond physical bank notes. The PBoC previously announced that it would disinfect cash for up to two weeks before absorbing it into their vaults and put around 600 billion of new yuan into circulation on Feb. 15

Researchers at the Bank for International Settlements (BIS) recently released its newest quarterly report on the changes in the payment industry, including the market impact of the recent coronavirus outbreak.

The report highlighted the ways the COVID-19 could be the catalyst to spark mainstream digital payments. Per the report, “The most transformative option for improving payments is a peer-to-peer arrangement that links payers and payees directly and minimizes the number of intermediaries. Many peer-to-peer arrangements use distributed ledger technology (DLT),”

Bitcoin and Libra have also caught the institution’s attention, while the BIS acknowledged that central banks are increasingly exploring the “desirability and feasibility of establishing their own peer-to-peer systems through digital currencies.”

China's Central Bank Says Digital Yuan Will Not Raise Inflation

China’s central bank has been secretive and silent when it comes to the testing of its national digital currency, which has piqued the curiousity of its citizens. A bank representative recently appeared at a state-owned television company responding to such public curiosities and gave an explanation of how the digital yuan would function.

Race to Ramp Up China’s Digital Yuan Progress

The representative confirmed that the digital yuan, commonly recognized as Digital Currency Electronic Payment (DCEP), has had a pilot test conducted. The testing has been carried out in several cities such as Beijing, Chengdu, Xiongan, Shenzhen, and Suzhou, and future testing is intended to take place in the winter Olympics.

The researcher put great emphasis that such current tests do not mean that the DCEP has been officially issued for public use.

The representative further said that this closed test of the national digital currency would not negatively affect the commercial operation of the listed institutions. The spokesperson stated that it would have no adverse effect on the traditional fiat currency (renminbi) system of circulation and issuance. The representative further mentioned that no effect would be caused on the financial market or social economy of China outside of this testing environment.

As a countermeasure against overselling the digital yuan, the bank mentioned that commercial institutions would be required to pay a 100% reserve to the central bank, first. In other words, the national digital currency would act as a kind of stablecoin, with the central bank first exchanging the virtual currencies to relevant operating agencies and various commercial banks. Such agencies will then release the digital currencies for public circulation. It is an organized system that works well to prevent any inflation because the digital yuan being staked to the traditional fiat yuan at a 1:1 ratio.

Concerning technical designs, the central bank has officially completed the top-layer of the design. The digital yuan will soon adopt a two-layer architecture as well as a two-tier delivery system besides that. The central bank also gave an important explanation with regards to connectivity. It revealed that if payment functions for payment platforms and online banking were to go offline because of weak signals, the Digital Currency Electronic Payment incorporates dual offline technology to compensate. Therefore, the digital yuan will be just as efficient as paper yuan. The bank also said that so long as two mobile phones touched with the Digital Currency Electronic Payment wallet incorporated into both, a transfer of payment can be conducted.

The bank says that the national digital currency is not tied to any kind of bank account and is free from the control of the traditional banking system. Unlike other cryptocurrencies, the national digital currency is launched by China’s central bank and backed by the country’s credit. This is similar to the electronic version of the traditional fiat renminbi. However, it remains to see how accurate the technicality of the DCEP would be.

China’s Digital Yuan to Be Operational for Local Government Employees Starting in May

China could be set to introduce its national digital currency in the market by May 2020. The Chinese administration plans to release the central bank digital currencies for its local government employees. It will be a real test to examine the usage of digital currencies among its government workers. However, it will be a pilot test of using the Digital Currency Electronic Payment for government workers’ transportation allowance. The country will also be testing the use of its digital currency electronic payment for paying salaries to its government employees.

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McDonald's, Subway and Starbucks Among the First to Trial China's Digital Yuan

Mcdonalds has been named along with coffee giant Starbucks as one of the 19 retail firms and restaurants that will be first to try out China’s Digital Yuan in the new district of Xiong’An.

On April 22, the Reformation and Development Commission of the Xiong,An district convened to discuss the pilot for China’s Digitial Currency Electronic Payment (DCEP) according to the South China Morning Post.

China has been unswerving in their race for central bank digital currency dominance even in the wake of the COVID-19 disruption which has perhaps also added fuel to the necessity to have a cashless system free of germ filled notes.

The pilot is the next step in China’s DCEP plan and the PBoC and state-owned commercial banks have already begun developing digital wallet applications and designing the digital Yuan.

The report does not give an exact time length to the testing period but noted that the meeting involved representatives from all four of China’s state-owned banks, Tencent, Ant Financial and Huawei. 19 restaraunts will also participate which will include Mcdonalds, Starbucks and Subway.

The official test application also shows that the DCEP test is being rolled out in the cities of Chengdu, Suzhou, Shenzhen.

As reported by Blockchain.News, local government employees in the city of Suzhou will be receiving China’s central bank digital currency, digital currency electronic payment (DCEP) pilot test in May.

The DCEP Top-Level Design

China's Central Bank Governor Says no Timeline for Digital Currency Launch

Yi Gang, the governor of the People’s Bank of China has declared that there is no specific timeline to the official release date of the digital Yuan currently under development.

Yi stated as revealed in a transcript of an interview with the Financial Times and China Finance that the current pilot test phase is “still a routine work in the research and development process, and does not mean that the digital RMB will be officially issued. There is no timetable for when it will be officially launched.”

The Foundation of the Digital Yuan

The Chinese government was not an early adopter of cryptocurrencies and blockchain-related projects. The Chinese government’s relationship with the cryptosphere at the early stages was rightly captured by Edith Yeung, head of 500 Startups as a “love-hate relationship.” Yeung also said in an interview with CNBC at East Tech West that the Chinese government is investing in blockchain projects but decidedly averse to the financial aspects of cryptocurrencies. The involvement of the Chinese government over the years became more pronounced when China announced it will be launching its own digital currency whose development has been in progress since 2018. The government hopes this move will help strengthen the Yuan both locally and internationally.

Plans to Fast-track General Blockchain Integration

The development of the digital Yuan entered a test pilot phase in April 2020 with 4 cities actively involved in the test. The Governor of the People’s Bank of China also noted that the digitization of the Yuan is significant in that it is “conducive to efficiently satisfying the public’s demand for legal currency under the conditions of the digital economy.”

The digitization of the Chinese economy with blockchain-based innovations keeps making the rounds and industry experts believe that these moves can serve as an insurance scheme to the economic threats from the United States of America.

Chinese CBDC's Backend Developments are Complete, Revealed During 2020 FinTech Forum

The world’s attention is on China who has recorded a great advancement in the development of its central bank digital currency (CBDC). The Chinese CBDC project, also known as digital currency electronic payment (DCEP) entered its testing phase back in April with a test run billed for four major cities. The project has been confirmed to have completed all backend developments according to Wang Zongmin, a former deputy chairman of the Social Security Fund Council.

Wang made this known during the online 2020 Fintech Forum organized by Tencent Fintech Research Institute and the Fintech 50 Forum in Beijing. With the completed backend architecture of the DCEP, the well-acclaimed digital currency is geared for faster breakthroughs.

DCEP will push for economic dominance

Although China’s central bank governor Yi Gang has said that there is no timeline for the release of the CBDC, the project has made a series of advancements that will fast track its eventual launching. Wang believes the digital currency will present a new format in three aspects.

Wong pointed out that local governments are launching digital financial subsidiaries drawing from the digital currency applications scenario of the DCEP. Secondly, he noted that the coronavirus pandemic caused a surge of digital currencies around the world with the digital dollar and Libra in core focus. China cannot afford to lag behind. Lastly, Wang said that the introduction of the DCEP will improve the efficiency of policy implementation, and provide new ideas for poverty alleviation, charity, and service entities.

Possible reliance on the digital yuan

Central Banks are piloting their own digital currencies to keep their fiat currencies relevant as the world transitions to a fully digital economy. Blockchain.news reported the clampdown on Bitcoin by Donald Trump, a move that will hand over the future of digital currencies to China.

On the global scene, blockchain enthusiasts anticipate the probable competition that would spring up between the Chinese CBDC and Facebook’s Libra when both currencies are eventually launched.

Singapore Consults China on Central Bank Digital Currency

The discussions on central bank digital currencies (CBDCs) are now becoming commonplace in today’s blockchain ecosystem. With growing interests among central banks around the world in developing their own digital currencies, the paradigm on the future of blockchain technology has shifted with notable promises. Singapore has joined its Asian counterparts, like Hong Kong, South Korea, Japan, and others in a central bank-backed digital currency project in conjunction with China. The Singaporean CBDC project is dubbed Project Ubin and it aims at deploying blockchain and Distributed Ledger Technology for the settlement of payments and financial securities.

Highpoints of the Probable Alliance

Meng Wenneng, the Director of the Monetary Authority of Singapore (MAS) made it known that the country’s project can benefit from China’s advancement on similar projects. Meng acknowledged that:

“The Central Bank of China is very active in this area,” He added, “Singapore and the Central Bank of China have a lot of exchanges, and both sides are discussing the CBDC-related landing scenarios.”

China entered the testing phase for its digital Yuan in four cities including Shenzhen, Suzhou, Xiong’an, and Chengdu. The Chinese digital Yuan targeted at sparking the Chinese digital economy agenda will serve as a model for Singapore’s Project Ubin which is billed to improve cost-effectiveness for businesses.

Singapore’s Option Diversity

The MAS maintains a flexible stance on its choice of digital currencies. The sovereign financial authority of Singapore does not rule out the underlying potentials of Facebook Libra. This stems from Facebook Libra’s switch to fiat pegged stablecoin option to drive flexible universal inclusion. With Facebook Libra’s willingness to work with foreign regulators, the MAS may consider a partnership option with the project as it gradually worked on its digital currency that may span several years.

As the narrative is changing based on the need to develop alternative currencies as world economies evolve, it behooves on central bank drivers to tag along. This diversified position of the MAS is crucial in helping the country transition with ease.

China's Central Bank Publishes Rules for Blockchain-Based Financial Applications

The People’s Bank of China (PBoC) has published a set of evaluation rules for blockchain-based finance applications. The published rules aim to provide regulatory oversight using three basic standards bordering on technical, performance, and security.

The regulations will affect banks, insurance companies, brokerages, and other financial institutions that have or plan to integrity blockchain.

The Chinese central bank’s guidelines will promote the adoption of unified standards for product design, software development, privacy protection rules, and system evaluation of financial applications involving blockchain technology. The People’s Bank of China has often shown strong leadership in promoting the development of blockchain in every aspect. The outcome of the financial-based application regulation takes its foundations from the plan by the PBoC to drive an industry-wide regulation in the financial services sector.

China Taking the Lead in Blockchain Engagements

China undoubtedly has an enviable blockchain drive. The country’s agenda to hasten the development and eventual release of its state-backed digital yuan was unwavered as the coronavirus pandemic rages on. While the Chinese central bank’s blockchain agenda has attracted positive consultation from neighboring nations, as in the case of Singapore, the drive has spurred the US to reconsider its position on the development of its digital currency.

The US held a senate hearing to discuss how a Digital Dollar could provide the needed competition for the digital yuan in the wake of the US-China political tensions. Although the governor of the PBoC, Yi Gang has confirmed that there is no special timeline set for the issuance of the digital yuan, the project has entered its real-world use case test stage.

Beyond the digital yuan project, China, through the China Securities Regulatory Commission (CSRC) has also extended the country’s blockchain integration drive-by kickstarting the experimentation of a blockchain pilot in its equity trading industry.

Xiao Gang, the former chairman of the China Securities Regulatory Commission suggested that more research into decentralization and information needs to be done and that the country would need to embrace new technologies and build business models to promote data connectivity.

Alipay and WeChat Pay Could Be Casualties of China's Digital Yuan

The People’s Bank of China through the use of its proposed Digital Currency Electronic Payment DCEP system aims to tackle the dominance of WeChat Pay and Alipay in the nation’s digital payment ecosystem. The news was reported days after the People’s Bank of China urged the nation’s top antitrust agency to probe the dominance of the two payment giants in the country.

As the Financial Times noted, the DCEP (another designation for the Central Bank Digital Currency, CBDC) can provide the necessary competition to level the playing field for all stakeholders in the digital payment system in China.

China’s DCEP Has Always Being Pitched Against WeChat Pay and Alipay

The intention to deploy China’s novel digital currency to curb the dominance of Alipay and WeChat Pay had been activated for a while now. Highlighting the potential risk the dominance of the two digital payment giant can have on the economy, Mr. Mu Changchun, the Director-General of the Institute of Digital Currency of China’s central bank, People’s Bank of China said that Alipay and WeChat Pay are “trying to provide redundancy to our very advanced electronic payments.”

The nation cannot afford to depend solely on the two tech giants as the risk of economic collapse can have an unprecedented effect across the board.

China’s primary focus was to reposition the proposed Yuan to wade off foreign competitors such as the Facebook Libra project and the global dominance of the United States Dollar. Its revised focus involving local multinationals can best be attributed to its wish to level the playing ground for all parties in anticipation of the eventual rolling out of the eYuan.

Is the Release of the Digital Yuan Imminent?

The proposed curbing of the dominance of Alipay and WeChat Pay by the PBOC can only be activated with the eventual launch of the project. While the anticipation mounts, the PBOC has warned masses of impostors as it confirmed that it has not yet fixed a date for the eventual release of the digital Yuan.

Nonetheless, the project has entered its advanced testing phase with the People’s Bank of China announcing that it would test the CBDC on Tencent’s backed Meituan Dianping food delivery payment platform