The Banking Executive Magazine - January 2022 Issue

INTRODUCTION China launched its official digital currency. This article covers the launch event and overviews the var- ious features of the launched digital currency including the goals, objec- tives, technology, trading, and mo- bile wallet app. Following this overview, the article reflects on China digital currency strategy, and its world impact. The article con- cludes with lessons drawn for Arab banks in digital currency innovation, control, sovereignty, and technology leadership. LAUNCH OF THE DIGITAL YUAN On Thursday the 13th of January 2022, Forbes Financial News an- nounced the launch of China official cryptocurrency, the digital yuan. The news spread World Banks and Gov- ernments fears. China is taking an unprecedented step towards cryptocurrencies and blockchain technology and is launching the digital yuan. World Banks and Governments are fearing the rising power of China following this step. WHAT IS DIGITAL YUAN? Digital Yuan, referred to as Digital renminbi (in Chinese language ), or digital RMB, or e- Chinese yuan (e-CNY), or Digital Currency Elec- tronic Payment (DCEP), is a central bank digital currency issued by China's central bank, the People's Bank of China PBOC. It is the first digital currency to be issued by a major economy. The digital yuan is legal tender and has equivalent value with other forms of renminbi, also known as the Chinese yuan (CNY), such as bills and coins. The digital yuan is designed to be used instantaneously in both domes- tic and international transactions. It aims to be cheaper and faster than existing financial transactions. The technology enables transactions to take place between two offline de- vices. The digital yuan is seen by some commentators as a form of Chinese government surveillance and control over users and their financial trans- actions. DIGITAL YUAN TECHNOLOGY According to Forbes news, China is supporting its own Digital Currency Electronic Payment (DCEP) system, completely different from crypto. The DCEP is a digital form of China’s fiat money, subject to the same People's Bank of China PBOC (PBOC) is- suance and design regulations that govern physical currency. The goal of the DCEP is to provide high trans- parency in transactions for the gov- ernment, in other words, to let Chinese regulators know everything about people who are making pur- chases and sales. The currency goal is exactly opposite to the goal of Bit- coin in term of control and supervi- sion. The DCEP is centralized and, since it is just a digital form of the Renminbi, it is stable and not, like crypto cur- rencies, a speculative asset. The DCEP is designed to increase the government’s grip. China developed its own blockchain because of its worry that traditional blockchain is a decentralized system enabling illegal views and payments. China authorities are supporting the development of a centralized, government-controlled version of the blockchain for China. The blockchain-based service network (BSN), launched in 2019, differs from the traditional blockchain in that it is permissioned and transparent to gov- ernment authorities. It enables the government to reverse transactions. Ultimately, China hopes that BSN will replace SWIFT as a more secure version way to make international payments. A blockchain is a distributed data- base that is shared among the nodes of a computer network. As a data- base, a blockchain stores information electronically in digital format. Blockchains are best known for their crucial role in cryptocurrency sys- tems, such as Bitcoin, for maintain- ing a secure and decentralized record of transactions. The innova- tion with a blockchain is that it guar- antees the fidelity and security of a record of data and generates trust without the need for a trusted third party. One key difference between a typi- cal database and a blockchain is how the data is structured. A China Launches its Digital Yuan Cryptocurrency ISSUE 157 JANUARY 2022 the BANKING EXECUTIVE 9