Coming soon! China's central bank digital currency has completed "top-level design" and will not allow exchange with cryptocurrencies.

According to the latest report "Inventory of the Central Bank in 2019" released by the People's Bank of China, China's digital currency DCEP has basically completed top-level design, standard formulation, functional development, and interconnection testing.

The development of China's digital currency (Digital Currency/Electronic Payment, abbreviated as DCEP) seems to be progressing rapidly. The next phase will follow the principles of stability, security, and controllability, selecting pilot verification areas, scenarios, and service scopes reasonably, continuously optimizing and enriching the functions of DCEP, and steadily advancing the actual digitization of the Renminbi.

The operating model planned for DCEP is a "dual-tier operating system," where the "top-level design" refers to the central bank to commercial banks, and the bottom level is commercial banks to the public. The top-level research, testing, and other work have already been completed.

The Director of the Digital Currency Research Institute, Mu Changchun, stated that the next step is to follow the principles of stability and security. He mentioned:

DCEP and Libra developed by Facebook are two different types of digital currencies. DCEP has infinite legal tender (legally enforceable, recipients cannot refuse), only replaces circulating currencies, supports dual-offline payments, anonymity, and does not explicitly require the use of blockchain technology, which sets it apart from Libra.

Despite this, the People's Bank of China (PBoC) has not disclosed an exact launch date. The central bank previously mentioned:

As early as 2014, the central bank established a special working group and set up the Digital Currency Research Institute. The highly anticipated digital Renminbi will first be distributed to commercial banks, and in the second phase, users and businesses will be able to register digital wallets with these commercial banks.

According to reports, the initial cities to pilot the digital currency will be Shenzhen and Suzhou. The central bank has already conducted trial projects with seven state-owned commercial banks and telecommunications companies, including Industrial and Commercial Bank of China, Bank of China, China Construction Bank, Agricultural Bank of China, China Telecom, China Mobile, and China Unicom.

After the trial projects in Shenzhen and Suzhou, DCEP is expected to be widely adopted in major cities in 2020.

Earlier reports from the BIS also indicated that the Bank for International Settlements (BIS) is optimistic about the future of national digital currencies, stating that they could bring significant changes to the financial sector, providing new possibilities such as an all-weather payment mechanism, including anonymity and peer-to-peer transfers.

Beijing Regulatory Bureau Director: Virtual Currency Regulation Will Only Get Stricter

Regarding the impact of DCEP on the issuance and trading of cryptocurrencies within China, as reported on the 13thhere, there will be no further opening up. Huo Xuewen, Director of the Beijing Local Financial Supervision and Administration Bureau, told the media that there is "zero tolerance" for issuing currencies and that virtual currencies cannot serve as legal digital currencies.

Regarding the legalization of cryptocurrency exchanges, Huo Xuewen stated that licenses are unlikely to be issued. He also bluntly stated that in the future, DCEP will not be exchangeable with any virtual currency:

Our country does not allow cross-border virtual currency transactions. No institution can sell foreign virtual currencies domestically, and no institution can provide the exchange between virtual currency and Renminbi. For such activities, we will closely monitor and severely crack down, finding and eliminating them.

Many cryptocurrency exchanges in China adopt the Variable Interest Entities (VIE) structure to avoid risks. This means that the domestic operating entity is separate from the overseas listed entity, with the overseas listed entity controlling the business and finances of the domestic operating entity through agreements.

Huo Xuewen is well aware of the current situation of cryptocurrency exchanges in China. He stated that these situations are all violations. He also mentioned that issuing, selling, and trading virtual currencies domestically are illegal.

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