It is no secret that a number of Chinese banks have already been conducting trials and hypothetical tests using the People’s Bank of China digital currency (DCEP). In fact, following a successful trial of the DCEP, the Chinese district of Suzhou entered into a memorandum of understanding (MoU) with Cypherium in order to build an array of novel financial products. This MoU was signed back in July 2020.
Another phase of the DCEP trial in China’s district of Suzhou was concluded on December 27, 2020. During this exercise, there were reports of successful implementation from both the customers and merchants. This particular trial introduced a number of innovations that were absent in the previous trials, among which is the Near Field Communication (NFC) technology.
Such events as listed above, among other developments suggest that the actualization of the digital yuan project by China may be sooner than many people expect. According to Sky Guo, CEO of Cypherium and founding partner of the OMFIF Digital Monetary Institute and Faster Payments Council, it is not a farfetched notion to assume that China may be the first country to launch its CBDC by the end of next year.
Sky notes that the Chinese government will be expanding the testing of its new sovereign digital currency by early 2021, with Li Lihui, head of the blockchain research group for the National Internet Finance Association of China, stating in a recent interview that the successful testing of the digital yuan within sectors such as retail has matured to a point where the currency can go public on a larger scale.
Sky continues by explaining that with the technology fast-maturing, it stands to reason that most countries currently testing CBDCs including China, Japan, Sweden, Switzerland and France will most likely end up making use of them since they can “potentially deliver a number of unparalleled benefits that existing financial systems (such as SWIFT) simply cannot match at this point”, which includes transaction settlement speeds, consumer accessibility, efficiency, cost-effectiveness, etc.
In his opinion, the opportunities that CBDCs afford are quite diverse, however, as things stand, it appears as though most of these offerings will be used for inter-bank settlements or for things like consumer and retail payments.
As the technology continues to evolve, we could see CBDCs being used for cross-border transactions as well, however, the framework required for deploying such a system would be a bit more complex and will take a little more time to develop fully.
CBDC implementation varies from one country to another, especially in the early stages of development. This is a scenario that is acknowledged by Sky. He notes that a key reason for this situation is based on the unique native technological setups of the different countries. Thus, for CBDC-based cross-border payments to become a reality, a unified system that can accommodate transactions related to different centralized digital currencies in real-time is necessary.
“Steps in this direction have already been made by us, as the Cypherium blockchain ecosystem, which is a combination of proof-of-work (PoW) and HotStuff consensus algorithms, has already developed a cross-chain interoperability solution for CBDCs”, concludes Sky.