The central bank's digital currency demo will be launched next year, with the first pilot being in the bill field

Golden Finance News - According to the head of a Beijing-based external consulting company involved in blockchain research, the prototype system demo of the central bank's legal digital currency is expected to be launched next year. Previously, the prototype plan for the central bank to issue legal digital currency has completed two rounds of revisions.

The prototype plan for the central bank to issue legal digital currency has completed two rounds of revisions. Image source: Golden Finance

This means that the central bank's digital currency system, which has been deployed for at least a year, is finally about to be implemented.

Pilot in the bill field first, then expand the scope

According to the person in charge of the above-mentioned blockchain technology development company, this system will be piloted in the bill field now, and will only be promoted to the currency field after success. In this field, it will also be piloted on a small scale first and then expanded.

A bill is a negotiable instrument that represents a claim for a certain amount of money, i.e., a monetary instrument, which represents a claim for a certain amount of money and can be circulated within the legal scope and conditions. Therefore, it has basic functions such as exchange, payment, settlement and credit.

It can be seen that although the bill is not the currency itself and does not have the mandatory universal effect of legal tender, it has characteristics that are very similar to currency.

At the same time, several "bill cases" have been exposed this year, in which bills were forged or misappropriated, involving amounts as high as billions.

In order to solve similar problems, the central bank has designed a blockchain-based bill trading platform to solve this problem, and all paper bills will be withdrawn from the market in the next two to three years.

The distributed accounting blockchain technology can fully record all transactions and all destinations, is independent of a single trading platform, cannot be tampered with, and ensures the authenticity of transactions. At the same time, it can eliminate information asymmetry and decentralize intermediaries.

Yao Qian, deputy director of the Science and Technology Department of the People’s Bank of China and head of the preparatory group of the Digital Currency Research Institute, said:

“If digital currency is introduced into the system, direct clearing can be achieved on the chain, simplifying the bill transaction process. Simple transactions do not require third-party credit guarantees, do not have to worry about delivery issues, and do not have counterparty risks. The disadvantage is that because the transaction is fully cleared, it occupies more funds of the participants, and certain measures are needed to improve the efficiency of fund utilization.”

Conception of a specific digital currency system

It can be seen that the introduction of digital currency is mainly due to considerations of security and efficiency.

At the People's Bank of China's digital currency seminar held at the beginning of this year, it was stated that issuing digital currency can reduce the high costs of issuing and circulating traditional paper currency, improve the convenience and transparency of economic transaction activities, reduce illegal and criminal activities such as money laundering and tax evasion, enhance the central bank's control over money supply and circulation, better support economic and social development, and help realize the full realization of inclusive finance.

It is reported that the central bank established a special research team as early as 2014.

Previously, the prototype plan for the central bank to issue legal digital currency had completed two rounds of revisions.

As for the specific core elements of this system, Yao Qian wrote an article in China Finance in August this year to introduce it. Specifically, the system includes the following main components:

——Central Bank Digital Currency Private Cloud: underlying infrastructure used to support the operation of the central bank’s digital currency.

——Digital currency: an encrypted digital string representing a specific amount of money, guaranteed and signed by the central bank.

——Digital currency issuance library: The People’s Bank of China stores the database of the central bank’s digital currency issuance fund on the central bank’s digital currency private cloud.

——Digital currency commercial bank database: The database where commercial banks store the central bank’s digital currency, which can be stored locally or on the central bank’s digital currency private cloud.

——Digital currency digital wallet: refers to the client used by individuals or corporate users in the circulation market to use the central bank's digital currency. This wallet can be hardware-based or software-based.

——Authentication Center: The central bank centrally manages the identity information of central bank digital currency institutions and users. It is a basic component of system security and an important part of controllable anonymous design.

——Registration Center: Record the central bank’s digital currency and the corresponding user identity to complete the ownership registration; record the transaction flow to complete the registration of the entire process of the central bank’s digital currency generation, circulation, inventory verification and extinction.

——Big data analysis center: anti-money laundering, payment behavior analysis, regulatory control indicator analysis, etc.

Nowadays, electronic payment in China is very common, and the user experience is very similar to that of digital currency. The introduction of legal digital currency may reduce the reliance on third-party payment institutions as payment transfer institutions and payment channels to a certain extent, but the specific situation depends on the final implementation plan of digital currency.