Blockchain Asia | #10

China's Central Bank is unveiling its Digital Currency DCEP

China is accelerating the testing of DCEP (Digital Currency/Electronic Payment), the central bank’s digital currency.

This image circulating on the Internet of a DCEP wallet on Agriculture Bank of China’s mobile app speculated that the bank was undergoing some testing. The speculation was later confirmed by the bank.

DCEP to replace M0 - physical cash and coins in circulation

One feature allows two parties to transfer currency to each other simply by touching their mobile phones even without WIFI, that is, as long as you have a mobile phone and digital currency in your wallet, you can conduct a transaction with your counterparty, anywhere, anytime.

DCEP does not need to go through any commercial bank account to process transactions.

These two features allow DCEP to function as M0 material paper cash or coin does. The Central Bank expects to replace 20-30% of physical cash with DCEP in the coming 2-3 years. Most urban areas in China have already had a high degree of cashless with the help of digital payment vehicles such as AliPay or WeChat Pay. People in rural areas, however, still rely on physical cash. This explains why the Agriculture Bank of China is the first commercial bank to kick off the testing project.

DCEP pilot project being conducted in April and May

The pilot project is being conducted in the beautiful city, Suzhou, Jiangsu Province. Some enterprises’ employees are setting up the DCEP wallet on their mobile phones. In May, these employees will receive some proportion of their salary in digital currency in the wallet. If the testing is a success, the introduction will be expanded to a larger percentage of the population.

Will AliPay and WeChat Pay be replaced by DCEP?

Yes, eventually, they may lose users or be phased out.

Right now, AliPay and WeChat Pay act like the front end of a commercial bank, collecting customers’ information and payment details, while a bank they are linked to helps process the transactions and collects a percentage of processing fee from them. Through offering a much easier and pleasant customer interface and services, AliPay and WeChat have served as the de facto front end of banks for years.

With DCEP, a customer has the option to convert into digital currency some or all of his deposits through a commercial bank. He then goes out to buy goods or services using the digital currency in his wallet. In theory, nobody would turn down DCEP because it is backed by the central bank, just as nobody would turn down physical cash. As long as it is convenient and fast, businesses do not care if he uses DCEP or AliPay or WeChat Pay.

DCEP should end up being initially an alternative and ultimately a substitute or replacement for AliPay and WeChat Pay.

Will the Central Bank be watching you?

It depends on how the privacy feature of DCEP is set up. Unlike physical cash, DCEP system will at a minimum allow for the Central Bank to trace the movement of the digital currency. The wallet allows users to select privacy preferences that range from remaining anonymous to being fully identifiable.

Why is China eager to launch DCEP?

In the short run, the digital currency will help the Chinese central bank combat counterfeit money while reducing production and storage costs. In the midterm, combined with blockchain technology, the Chinese central bank may be able to craft more tailored and targeted monetary policies, supported by real-time data of money supply and demand. In the long term, DCEP may facilitate and aid China’s efforts to make the RMB a global currency.


Blockchain Asia covers exclusively blockchain developments in Asia, including regulations, investments, new deals and company highlights. It is owned by Kee Global Advisors. For previous posts, please visit here.