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#1 12-07-2020 21:29:15

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The DCEP digital yuan and its effect on the markets

The DCEP digital yuan and its effect on the markets

The People's Republic of China has been developing ​​a digital yuan for the last 6 years. The first tests of a compatible digital currency block were carried out 4 years ago with some success. A test report indicated that these preliminaries have reduced transfer costs, increased transparency and reduced money laundering and tax evasion.

And 3 years ago, China created the DCRI (Digital Currency Research Institute) sponsored by the PBOC (People's Bank of China) and headed by Mu Changchan. In fact, DCRI is even located in the same building as the China Banknote Printing and Mining Corporation, sponsored by the PRC, which could be compared to a state currency. China has also created a framework called DCEP (Digital Currency / Electronic Payments) which would be managed by a national cryptocurrency.

2 years ago, the PBOC announced that it had built a digital currency. And last year, the PRC established its national cryptocurrency law, which gave the Communist Party authority over three types of encryption: basic, common and commercial.

Initial reports indicated that it would be possible to download the digital yuan nationwide by the end of last year.

Although none of these deadlines have been met, the Chinese are clearly equipping themselves to discharge the DCEP as quickly as time permits, as indicated by Changchan's presentations. In these presentations, he clarified the dream of a sovereign digital currency, which remains completely different in nature and purpose from common cryptos such as the Bitcoin.

How will the digital yuan be different from other cryptos?

There are a few fundamental contrasts between the Chinese DCEP and the existing cryptographic forms of money. This is what emerged from an interview between Wired magazine and Terry Lio, head of VoneChain Technology, a blockchain consulting company based in China which works closely with various government departments on companies identified at its launch.

To begin with, its basic source is unique. Bitcoins and related monetary forms are extracted, which means that the source is decentralised and limited by computer calculation. The DCEP is authorised by the government and it is expected that the legislator will appropriate the liquidity through conventional banks and fiscal frameworks. This makes it completely centralised and exactly like the usual creation of paper money.

According to a Financial Times article that came out earlier this year, the PBOC has already filed 83 patents related to the launch of a state-supported digital currency discovered at the Digital Chamber of Commerce. Experts such as Marco Kaufman, a partner at Ramon Law who studied patents, have determined how digital money will be issued and delivered by interbank systems. Cryptographic wallets will also be integrated into users' existing bank accounts to facilitate payments. This shows that the Chinese plans to integrate its digital currency into the existing banking infrastructure rather than operating it independently.

Some of the patents show how the Chinese will be able to modify the supply of digital yuan algorithmically based on specific factors such as interest rates. Some patents even describe how residents can make regular yuan bank deposits and convert them to a digital version. The other licenses relate to the production of electronic money smart cards that would connect directly to users' bank accounts.

Second, the fundamental innovation is distinctive, since the blockchain registry will be limited by the legislator and will not be passed on throughout. Most cryptos are decentralised because multiple nodes around the world keep the network active. No single person controls the entire network, which makes it completely decentralised. The PBOC will supply and maintain the digital yuan, which will therefore be centralised and entirely under the control of the government.

Lastly, it is intended to operate exactly like ordinary cash and is integrated into the commercial framework. As the registry is in the hands of the legislator and is not dispersed in mining centers, cash will not have the delay problems that Bitcoins have, so it will be useful to use it under normal circumstances.

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