For a long time, many experts in the financial world have predicted that China would be the first major economy to launch a central bank digital currency. The latest reports out of China are showing these predictions to be true.
A Major Leap Forward
According to a recent report by a local media house, the test will take place in Xiong’an, which is a new city being developed near Beijing. The American fast-food chains will be included in the list of companies selected to take part in the trial. China plans to test the CBDC in 19 local businesses with small transactions.
The news marks a major leap forward in the development of a national digital currency, which has been dubbed the DCEP. It is also the first time that foreign companies are being involved in the project. The fast-food chains will be joined by local businesses in the new city such as a stuffed bun shop, local hotels, a gym, bookstore, a bakery, and several convenience stores. Some of the specific entities involved include McDonald’s, Subway, and Starbucks.
Development for the DCEP has been progressing fast since Xi Jinping announced that the blockchain would be an integral part of China’s development. Recently, the country formed a blockchain committee that includes some of the largest tech firms in the country. Recently, Xi said that the nation was going to step up its development of AI, 5G, and other technologies on a large scale.
Before the launch of the DCEP in Xiong’an, China had announced that the DCEP would launch in the city of Suzhou. In the city, the central bank of China will use the DCEP to pay half of the travel subsidies for works in the public sector. The trial is expected to start in May 2020. The country plans to conduct more tests in Chengdu and Shenzhen ahead of the 2022 Winter Olympics that will take place in Beijing.
No Launch Date Yet
The recent announcement is significant and many observers expect the country to launch the DCEP soon. However, the central bank of China has not issued a date for the launch of the digital currency. China has been working on the DCEP for almost five years. However, it was only after Facebook announced the launch of Libra that the central bank sped up the development of its digital currency. As a result, there has been speculation that the imminent threat posed by the release of Libra to the Chinese monetary policy is what spurred them on.
How the DCEP Works
Unlike cryptocurrencies such as Bitcoin, the DCEP will be centralized. The People’s Bank of China will maintain full control of the coin and it will have the ability to monitor all transactions. As a result, there have been fears that this will be used as a tool to impose stricter control over citizens.
Despite the privacy concerns, there is no denying that the launch of the DCEP by China’s central bank will be a game-changer. It might force other central banks in the region to reexamine their priorities and start working on the launch of a digital currency.
Differences Between Centralized And Decentralized
Central bank digital currencies have seen a lot more hype the last 1.5 years. Banks started understanding they could potentially revolutionize financial markets, especially since most countries are seeing rapid growth in “cashless transactions.” Financial institutions started researching their own “central bank digital currencies,” which would allow them to structure it in a “centralized” form, opposed to traditional cryptocurrencies like Bitcoin that are highly decentralized.
In a centralized model, banks would still have the ability to be the central hub, maintaining all data and client information. Outside of finance, centralized parties in other sectors include Facebook and Google since they control all user data flow. Banks believe they can take the underlying use cases of blockchain and decentralization, and tailor it in a centralized manner.
Decentralization is what cryptocurrency was initially born on. Bitcoin started surfacing after the financial collapse of 2008. The reason for this is people found interest in a “peer to peer” approach opposed to giving all parties a centralized power. Decentralized digital assets like Bitcoin do not require information to pass through a single entity. Instead, they rely on a “peer to peer” model that can essentially be independent of governing authorities.
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