China publishes first e-CNY whitepaper, confirming smart contract programmability

China publishes first e-CNY whitepaper, confirming smart contract programmability

The People's Bank of China (PBoC) has published a whitepaper for the country's central bank digital currency for the first time, marking yet another step toward its official rollout.

The PBoC issued a whitepaper on Friday for its digital yuan project, also dubbed the e-CNY, which notably confirms that the digital fiat currency is designed to be programmable with smart contract features. But it has not set any concrete roadmap or timeline for an official launch.

The whitepaper at a high level explains the background, features and the progress of the e-CNY initiative that started in 2014. According to the paper, part of the bigger context that pushed China into the research and development of the e-CNY was the emergence of cryptocurrencies and the risks and challenges they brought to the existing financial system.

"Bitcoin and other cryptocurrencies adopting blockchain and cryptography technologies claim to be 'decentralized,' 'fully decentralized' while they lack intrinsic values, are highly volatile, have low transaction efficiency and consumes an enormous amount of energy. These limitations prevented them from becoming a currency," the PBoC wrote.

"Meanwhile, cryptocurrencies are mostly being used for speculation that brings potential threats to financial security and social stability," the central bank continued. "Some business organizations roll out the so-called global stablecoins that peg to sovereign currencies. These will bring multiple risks and challenges to the global monetary polices, payment systems as well as cross-border capital management."

Supporting smart contracts

Under the section about the e-CNY's design characteristics, the PBoC confirmed that one of its seven major features is programmability. This is also the first time that the Chinese central bank has officially clarified there will be programmability built into the e-CNY.

"The e-CNY can be programmable by adding smart contracts that do not affect its currency function. Without its security and compliance being undermined, the programmable e-CNY can allow automated payments among transactional parties based on their preset conditions and rules, and hence bring innovations to business models," the PBoC wrote in the whitepaper.

The description to some extent comes at odds with what PBoC's officials said in remarks in 2018 and 2019.

Mu Changchun, the head of the PBoC's digital currency research lab and Fan Yifei, a vice governor of the PBoC, expressed contrary opinions on the "programmability" front of the e-CNY. They said the e-CNY could add on smart contracts that would help it better perform its role as a currency. But for smart contracts beyond the role as a currency, they could be "undermining the Renminbi by adding extra social or administrative functions," he said.

In fact, the latest e-CNY test in the Chinese city of Chengdu is already experimenting the confined usage of the e-CNY for specified purposes only. In this test, the e-CNY is programmed to only be spent on subway and bus tickets, along with shared bike services.

The dozens of patents that the PBoC have been authorized also shows the technology capabilities of the e-CNY for tracing transactions to ensure funds are being spent on intended goals.

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