Five Facts You Need to Know About DCEP

okx learn
OKX Learn
2020.04.20

DCEP has become one of the buzzwords in the blockchain space recently, the trail interface of the digital yuan offered by the Agricultural Bank of China (ABC) has grabbed a lot of headlines home and abroad in the recent weeks.

While the Facebook-backed Libra project has been downsizing from its original and trying to woo global regulators, China has been scaling up in the digital currency area and reportedly released its first DCEP application scenario in Suzhou.

The bold moves from the crypto-unfriendly country seems not just showing that digital currency is becoming a global trend, it’s also a solid proof of that the blockchain technology is going to be a critical part of the global financial system in the future.

The ultimate question is, what is DCEP and why China wanted to develop it? Now, sit back and enjoy as we dish out the five top facts that you need to know this disrupting technology.

What is DCEP?

DCEP, aka Digital Currency Electronic Payment, is a Central Bank Digital Currency (CBDC) project led by the People’s Bank of China. The plan is part of the response to President Xi Jinping’s advocate of “seizing the opportunity” of blockchain technology. The digital yuan is structured on a two-tier monetary system. (1) Central bank-issued CBDC to commercial banks and (2) Commercial bank-issued CBDC focused on the public.

Apparently, the screenshot that shows the interface from ABC suggested that the trial has been focused on consumer usage.

Why China Developed it?

The beginning of China’s DCEP project started way back from 2014 when the PBOC founded a research team specializing in cryptocurrency and established the Research Institute of Digital Currency in 2017.

You may wonder why the Chinese government developed its digital currency when mobile payment has been part of daily life for many Chinese citizens. The Deputy Director of the PBOC’s payments department, Mu Changchun, gave his answer: “It is to protect our monetary sovereignty and legal currency status. We need to plan for a rainy day.” Mu also emphasized that DCEP is not designed to copy Libra, and it will be pegged 1:1 to RMB.

The Pros

Compared to physical money, DCEP has its distinctive pros. For the government, a digital yuan could eliminate the money printing costs.

For commercial banks, DCEP could facilitate more money transactions with lower costs, increase business innovation while minimizing the risks.

For the public, DCEP could save them from indirect transaction fees for interbank transfers. Domestic and cross-border payments will also become less frictions.

Of course, there could be much more advantages that DCEP can bring, and we should embrace the change as well as the future of currency.

What it means to the cryptocurrency markets?

Perhaps that is the biggest concern of the crypto markets. We can imagine that launch of DCEP will broaden society’s acceptance of blockchain technology and diminish people’s prejudice against it. With a better understanding and real-life applications of this ground-breaking technology, the traditional investment community could be more open to blockchain investments. This potential shift of attitude could bring positive impact to the existing crypto space. Although there were concerns over the current stablecoin space, however, it seems that it is too early to access how DCEP would affect the stablecoin markets.

What we can expect in terms of CBDC?

We can foresee that there will be more countries and regions jumping on the CBDC bandwagon after China, and the US could be one of them. In light of the recent COVID-19 pandemic, some US law makers have discussed about how a digitalized dollar could be part of the stimulus package. The ECB also has been taking a more proactive approach when it comes to the study of having a blockchain-backed EUR. Meanwhile in Hong Kong, former HKMA Chief Executive suggested that a digital currency covering the four regions (China, Japan, Korea, and Hong Kong) should be promoted. He believes that this initiative will not only diminish the inconvenience of cross-border payment for enterprises. Also, it will better tackle the economic stagnation in east Asia.

Conclusion

Now that the official launch of DCEP seems to be just around the corner, we should better prepare ourselves for a more digital, convenient, and better future.