Is digital currency really coming? The first application scenario of DC/EP has been implemented

Author: Luo Tao

The first application scenario of DC/EP has been implemented in Suzhou

On April 15, the news of the internal testing of DC/EP wallet in Agricultural Bank of China continued to ferment. On April 16, the news that the first application scenario of DC/EP was officially launched in Xiangcheng District, Suzhou set off a new round of climax. As we count the days until the official launch of DC/EP, it has already appeared in our lives.

It is reported that the staff of district-level agencies and institutions in Xiangcheng District, Suzhou, whose wages are paid by the four major state-owned banks, must sign an agency agreement with the agency bank and complete the installation of the central bank digital currency (DC/EP) digital wallet in April. In May, 50% of the transportation subsidy in the salary will be issued in the form of digital currency. If the salary is paid by a bank other than the four major state-owned banks, one of the four major state-owned banks must be selected as the cooperative bank for the payment of transportation fees, and the bank card opening, agency agreement signing, and digital wallet installation must be completed by the end of May, and the digital currency issuance work will be completed in June.

Although the relevant government officials in Suzhou's Xiangcheng District did not give a positive response and the Financial Administration Bureau did not officially confirm the accuracy of the news, according to information from various sources searched by multiple media outlets, Suzhou has indeed become one of the first pilot areas for DC/EP and is cooperating with the central bank and the four major banks to advance the pilot project in an orderly manner.

With the implementation of application scenarios in Suzhou, the trial speed of DC/EP has far exceeded people's psychological expectations. It is believed that the pilot work in Shenzhen, Xiongan, Chengdu and other places will also proceed steadily. The pilot content will also involve multiple scenarios such as medical care, transactions, consumption, etc. in addition to the transportation field, and the content will be richer.

However, it may take some time before DC/EP is officially launched. At present, issuing currency in the form of electronic wallets requires a large and complex operation and management system. It is not enough to promote it nationwide. The pilot work in the relatively developed mobile payment field is relatively controllable. However, it will not take too long. There are reports that DC/EP may be officially launched within this year.

Led by the central bank, cooperation in building a technical platform

The issuance of DC/EP will adopt a two-tier operating mechanism. The central bank will play the upper role and exchange DC/EP to commercial banks. In this regard, the Digital Currency Research Institute of the People's Bank of China has made sufficient technical preparations.

According to the "Patent Search and Analysis Platform" of the State Intellectual Property Office, the Digital Currency Research Institute of the People's Bank of China has obtained 76 digital currency-related patents so far. Since the end of 2019, the Digital Currency Research Institute of the People's Bank of China has successively announced four patents: "A digital currency verification method and system", "A digital currency quota recovery method and system", "A digital currency quota delivery method and system", "A digital currency circulation method and system", and "A digital currency generation method and system". The research focuses on the delivery and management of digital currency, which is consistent with the role played by the People's Bank of China.

Although blockchain technology is not the only technical means DC/EP relies on, its importance cannot be ignored. We note that among the 76 patents disclosed by the Digital Currency Research Institute of the People's Bank of China, only 5 are related to blockchain. According to PANews statistics, the blockchain-related patents published by the Digital Currency Research Institute of the People's Bank of China do not involve the G06Q field with the largest number of research (data processing systems for administrative, commercial, financial, management, supervision or forecasting purposes), which is exactly the field with the largest number of public patents of other banks. We cannot find out whether there is mutual cooperation between the institutions, but it is not difficult to speculate that the issuance of DC/EP may integrate the technical achievements of multiple parties.

Distribution pattern of blockchain patent technology fields disclosed by banks｜Image source: PANews

In the field of blockchain patents, in addition to banks, Tencent, Alibaba, and Emerit ranked in the top three with 776, 608, and 396 blockchain patents respectively. OneConnect, Ping An Technology, FuZhuMei, China Unicom, NetMind Technology (Xunlei), Yuanzheng Technology, Baidu, and QuChain also have more than 100 blockchain patents. State Grid, universities, research institutes, and foreign companies have also made considerable progress in this field. They have directly or indirectly laid the foundation for the development of DC/EP.

What role will WeChat and Alipay play?

Since DC/EP is positioned as legal tender, backed by the state and has the function of replacing cash, compared with electronic payments such as WeChat and Alipay, it has inherent advantages in convenience and security of use. Many people worry whether WeChat Pay and Alipay will be replaced.

In fact, there is no need to worry about this issue. In essence, DC/EP is currency, and WeChat and Alipay represent a technical means of electronic payment. There is no competitive relationship between the two. The emergence of DC/EP has only changed the existence and circulation of currency, and the currency transmission channels provided by WeChat and Alipay have not changed.

However, it is still unclear whether WeChat and Alipay can participate in the issuance of DC/EP.

Under the two-tier operating system, the central bank, as the upper layer, exchanges digital currency for lower-level banks to fully mobilize the enthusiasm of commercial banks, but commercial banks need to pay 100% margin to the central bank accordingly. At the same time, since there is no preset technical route for commercial banks, any commercial bank that can meet the technical specifications and related requirements of DC/EP can connect with the central bank. This indirectly promotes the "competitive state" among commercial banks. Whoever's model is most acceptable to the market will take the lead. However, the official has not given a clear answer as to whether financial institutions outside commercial banks can participate in the issuance of digital currency.

Although there have been reports that the four major banks of China Agricultural Bank, Industrial and Commercial Bank of China, China Construction Bank, WeChat, Alipay and other institutions will participate in the initial issuance of the central bank's digital currency, the news has been repeated and has not been officially confirmed. The fate of WeChat and Alipay remains unknown.

WeChat and Alipay have been making adequate preparations for the issuance of DC/EP. Taking Alipay as an example, since February 2020, Alipay has successively disclosed five patents related to digital currency, involving digital currency's "account control method", "anonymous transaction method", "transaction execution method", "wallet opening method" and "transaction processing method". It can be seen that Alipay's research level has deeply penetrated into the most important areas of digital currency circulation.

Alipay’s disclosed patents related to digital currency｜Image source: PANews

In fact, the feature of DC/EP that allows transactions to be completed without relying on a bank account also makes it possible for mature electronic payment platforms such as WeChat and Alipay to access it.

We can see that since 2020, the promotion of digital currency has accelerated sharply. What kind of sparks will digital currency create in the future with the financial and monetary fields? Let us wait and see.

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