China has been working towards developing and launching its own national digital currency for half a decade, and the Chinese digital yuan project — also known as the Digital Currency Electronic Payment, or DCEP — has years of history. How has the development of the digital yuan affected the entire crypto and blockchain industry in China? Will the Chinese CBDC stay centralized or gradually become decentralized over time?

Chinese Govt’s Crypto Interest So far…

2014: the People’s Bank of China (PBoC) had set up a research group “to study digital currencies and application scenarios.” The research team was conducting a digital currency study and reportedly considering issuing its own digital currency.

2016: the People’s Bank of China (PBoC) announced plans to develop a digital currency of its own and started to hire blockchain experts. The same year, China’s State Council included blockchain technology in its 13th Five-Year Plan.

2017: the People’s Bank of China (PBoC) launched the Digital Currency Research Institute, which focused on the development and research of digital currencies. According to China’s National Intellectual Property Administration (formally known as the State Intellectual Property Office), the institute filed more than 63 patent applications related to blockchain and crypto during its first year of existence alone.

2018: A report — released by the Chinese Institute of International Finance, operated under the People’s Bank of China (PBoC) — indicated that the central bank would institute a regulatory crackdown on all types of digital currencies.

2019: Wang Xin, director of the People’s Bank of China (PBoC) research bureau, stated that Facebook’s plan to launch its own stablecoin, Libra (now known as Diem), and had triggered China’s plans to launch a digital form of the Chinese yuan. Back then, some experts predicted that the Chinese government-backed digital currency aimed to be rolled out earlier than the official launch of Libra.

2020: Last year, China's National Digital Currency (DCEP Project) made significant progress; meanwhile, the details of the project remained undisclosed. While the speculation of whether being the first in launching a Central Bank Digital Currency (CBDC) will be enough to win global reserve currency status remains open, China is clearly moving toward leading the charge into the digital economy.

2021: This year, China started testing infrastructure for the digital yuan prior to its official launch and the Chinese city of Shenzhen provided a chance for its citizens to participate in a lottery event that aimed to encourage the adoption of the country’s new central bank digital currency. Also this year, China completed the development of hardware wallets for the digital yuan project; the first one was produced by the Xiong’an branch of the Agricultural Bank of China in Hebei and the second by the Postal Savings Bank of China.

And earlier in March, the Bank of Communications and China Construction Bank conducted digital yuan trials at two major department stores in Shanghai.

Digital Yuan vs. Cryptocurrency

A major concern among experts is that China’s Central Bank Digital Currency (CBDC) is unlikely to be a cryptocurrency. The People’s Bank of China (PBoC) will, of course, back the digital yuan, making it the opposite of decentralized. China’s new digital currency will most likely be a centralized digital currency rather than a true cryptocurrency.

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Shao Fujun, chairman of China UnionPay and a former People’s Bank of China (PBoC) official, commented back in August 2019, China’s state-owned digital currency “will have lots of positive impacts, including tracking the money flow in economic activities and supporting making monetary policy.”

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The question of whether the People’s Bank of China’s (PBoC) currency will be like decentralized blockchain-based cryptocurrencies or if it will give Beijing more control over its financial system is an important one. Nonetheless, the development of the digital yuan has undoubtedly influenced the development of the digital economy both within and outside of China.

Mu Changchun, deputy director of the Chinese central bank’s payments department, said back in 2019 that the forthcoming digital yuan would strike the balance between facilitating anonymous payments and preventing money laundering.

He repeated the statement earlier this month, saying that a completely anonymous CBDC “is not feasible” because a national digital currency must meet requirements related to Anti-Money Laundering, Counter-Terrorist Financing and anti-tax evasion.

Meanwhile, Chinese authorities are willing to ensure maximum user privacy for the country’s central bank digital currency, according to Mu’s recent statement.