ofE-CNY in China

1 ProgressProgressProgressProgressofofofof ResearchResearchResearchResearch&&&&Deve lopmentDevelopmentDevelopmentDevelopment ooooffffE-CNYE-CNYE-CNYE-CNYininininChin aChinaChinaChinaWorkingWorkingWorkingWor kingGroupGroupGroupGroupononononE-CNYE-C NYE-CNYE-CNYR esearchResearchResearchResearchandandand andDevelopmentDevelopmentDevelopmentDeve lopmentofofofofthethethethePeople'sPeopl e'sPeople'sPeople'sBankBankBankBankofofo fofChinaChinaChinaChinaJuly,July,July,Ju ly,20212021202120211 ProgressProgressProgressProgressonononon ResearchResearchResearchResearchandandan dandDevelopmentDevelopmentDevelopmentDev elopmentofofofofE-CNYE-CNYE-CNYE-CNYinin ininChinaChinaChinaChinaIntroductionIntr oductionIntroductionIntroductionTherobus tdevelopmentofnetworktechnologyanddigita leconomycallforretailpaymentservicesthat aremoreconvenient,safe, ,centralbanksormonetaryauthoritieshaveke ptacloseeyeonFintechdevelopmentandsought todigitalizefiatcurrency, sBankofChina(PBOC) ,itsetupataskforcetostudydigitalfiatcurr ency,anditsscopeofresearchcoveredtheissu anceframework,keytechnologies,issuancean dcirculationenvironment, ,thePBOC establisheditsDigitalCurrencyInstitute, ,upontheapprovaloftheStateCouncil,thePBO C begantoworkwithcommercialinstitutionsind evelopingandtestingdigitalfiatcurrency(h ereinafterreferredtoase-CNY,aprovisional abbreviationfollowinginternationalpracti ces).

2 Sofar,asthetop-leveldesign,functiondevel opment,andsystemtestinghasbeenbasicallyc ompleted,thePBOC hasinitiatedpilotprogramsinsomerepresent ativeregions,whilemakingsurethepilotsrun inasteady,safe,managed, sposition,toexplainthebackground,objecti vesandvisions,designframeworkandpolicyco nsiderationsforthee-CNYsystem,toseekpubl iccomments,aswellastodeepencommunication withallthoseconcernedandjoinhandswiththe minbuildinganopen,inclusive, ,safe,safe,safe, ,astheChineseeconomyisshiftingfromhigh-s peedgrowthtohigh-qualitydevelopment, ,cloudcomputing,artificialintelligence,b lockchainandtheInternetofThings, sworkandlife,andonlineshopping, , ,therapiddevelopmentofelectronicpayment, especiallymobile2paymentinChinahasprovid edthepublicwithconvenientandefficientret ailpaymentservices,whichboosteddevelopme ntofthedigitaleconomy,helpedthepublicget usedtodigitalpayment, ,asafer, ,ensuresmoothdomesticcirculations, , ,thenumberandvalueoftransactionsviamobil epaymentaccountedfor66percentand59percen tofthetotal,whilethosepaidincashaccounte dfor23percentand16percent,andthosepaidby card7percentand23percent, , ,however,fromend-2016toend-2020,cashinci rculation(M0) , , , ,respectively, ,inparticular, , , ,mintingandprinting,transportation,depos itandwithdrawal,identification,processin g,reflow,destruction, ,Cryptocurrencies,Cryptocurrencies,Crypt ocurrencies,especiallyespeciallyespecial lyespeciallyglobalglobalglobalglobalstab lecoinsstablecoinsstablecoinsstablecoins (GSC),(GSC),(GSC),(GSC)

3 , , ,thereareover10,000kindsofcryptocurrenci eswhichhavegainedsomeinfluence, , ,giventheirlackofintrinsicvalue,acutepri cefluctuations,lowtradingefficienciesand hugeenergyconsumption, ,cryptocurrenciesaremostlyspeculativeins truments, , ,somecommercialinstitutionslaunchedso-ca lled stablecoins , ,whichwillbring1 Source:thewebsiteofCoinMarketCap,asofJul y15th, ,paymentandclearingsystem,monetarypolici es, (CBDC)(CBDC)(CBDC)(CBDC) , (BIS)oncentralbanksin65countriesoreconom ies, , ,inrecentyears,centralbanksoftheUS,theUK ,France,Canada,Sweden,Japan,Russia, ,Definition,Definition,Definition, ,quasi-account-basedandaccount-basedhybr idpaymentinstrument, :First,First,First,First, ,e-CNYhasallthebasicfunctionsofmoney, ,unitofaccount, ,e-CNYisChina ,e-CNYisthedigitalversionofChina ,theformofcurrencyhasevolvedfromobjects, , ,e-CNYisthecentralbank , ,Second,Second,Second, , , ,Third,Third,Third,e-CNYe-CNYe-CNYe-CNYi sisisismainlymainlymainlymainlyaaaasubst itutesubstitutesubstitutesubstituteforfo rforforcashcashcashcashinininincirculati oncirculationcirculationcirculation(M0), (M0),(M0),(M0)

4 , sliabilitiestothe4public, ,andwilltakeaccountofbothduringdailydata collection, ,asaneconomymatures, ,largepopulation, ,people spaymenthabits, , ,thePBOC willneitherstopsupplyingit, ,Fourth,Fourth,Fourth,asasasasretailreta ilretailretailCBDC,CBDC,CBDC,CBDC, ,therearetwokindsofCBDC, , ,theissuanceofe-CNYwillfullymeetthepubli c sdailypaymentneeds, ,Fifth,Fifth,Fifth,ininininthethethethef uturefuturefuturefuturedigitaldigitaldig italdigitalretailretailretailretailpayme ntpaymentpaymentpaymentsystem,system,sys tem,system,e-CNYe-CNYe-CNYe-CNYandandand andfundsfundsfundsfundsininininthethethe theelectronicelectronicelectronicelectro nicaccountaccountaccountaccountofofofofa uthorizedauthorizedauthorizedauthorizedo peratorsoperatorsoperatorsoperatorsarear eareareinter-operable,inter-operable,int er-operable,inter-operable, (includinganti-moneylaunderingandcounter ingterroristfinancingrequirements)

5 Se-CNYsystemaimstocreateanewformofRMBtha tmeetsthepublic ,efficient,adaptiveandopen,thee-CNYsyste mwillbolsterChina sdigitaleconomy,enhancefinancialinclusio n, , bank , bank , bank ,satisfysatisfysatisfysat isfythethethethepublicpublicpublicpublic , ,it sthemandateofthecentralbanktoensurethepu blic sdirectaccesstocash, , , ,ase-CNYissettleduponpayment, ,competition,competition,competition, , , , , ,e-CNYisChina slegaltender, ,ithasintrinsicvalue, , ,e-CNYsupportsmanagedanonymity, , ,cross-borderpaymentinvolvesvariouscompl icatedissuessuchasmonetarysovereignty,fo reignexchangepoliciesandarrangements, scurrencydependsonitseconomicfundamental sandthedepth, ,thoughtechnicallyreadyforcross-borderus e, ,thePBOC willactivelyrespondtoinitiativesofG20and otherinternationalorganizationsonimprovi ngcross-borderpayments, ,andpreconditionedonmutualrespecttomonet arysovereigntyandcompliance,thePBOC willexplorepilotcross-borderpaymentprogr amsandwillworkwithrelevantcentralbanksan dmonetaryauthoritiestosetupexchangearran gementsandregulatorycooperationmechanism sondigitalfiatcurrencyinlinewiththeprinc ipleof nodetriment, compliance, and interconnectivity.

6 22 First, , safeandinclusive,innovativeanduser-frien dly,andtime-evolving. Theprinciplesfordesignarebasedonaholisti cconsiderationofmonetaryfunctions,market demand,supplymodel,technologicalsupport, ,operatingmodel,digitalwalletecosystembu ilding,complianceandresponsibilities,sel ectionoftechnologyroadmap, ,inclusive,sound, ,anti-moneylaunderingandcounteringthefin ancingofterrorism(AML/CFT),theadministra tionofforeignexchange, , ,highlyusable,andhighlyexpandableandconc urrent, scurrencysovereigntyandtheirabilitytoful fillitsmandateformonetaryandfinancialsta bility, , ,complywiththeregulationsandlawsofthejur isdictionsconcerned, ,soastofacilitatetheadvancementofcross-b ordertrade, , , , ,suchassettlementuponpaymentandanonymity ,andthefeaturesofelectronicpaymentinstru ments,whicharelesscostly,highlyportable, , ,itistreatedthesameasthephysicalRMBunder M0, ,thePBOC doesnotchargeauthorizedoperatorsforexcha ngeandcirculationservices, ,thee-CNYislooselycoupledwithbankaccount s, (managed(managed(managed(managedanonymit y)anonymity)anonymity)anonymity)

7 E-CNYfollowstheprincipleof anonymityforsmallvalueandtraceableforhig hvalue, ,itisnecessarytoguardagainstthemisuseofe -CNYinillegalandcriminalactivities,sucha stele-fraud,Internetgambling,moneylaunde ring, ,thePBOC setsupafirewallfore-CNY-relatedinformati on,andstrictlyimplementsinformationsecur ityandprivacyprotocols,suchasdesignating specialpersonneltomanageinformation,sepa ratinge-CNYfromotherbusinesses,applyinga tieredauthorizationsystem,puttinginplace checksandbalances, ,includingdigitalcertificatesystem,digit alsignature,andencryptedstoragetomakedou ble-spending,illegalduplicationandcounte rfeit,transactionfalsification, ,thisfeatureenablesself-executingpayment saccordingtopredefinedconditionsortermsa greedbetweentwosides, smandates, ,circulation, , , ,underthePBOC scentralizedmanagement,givefullplaytothe ircreativity, ,underthequotamanagementofthePBOC,theaut horizedoperatorsopendifferenttypesofdigi talwalletsforcustomersbasedonthestrength ofcustomerpersonalinformationidentificat ion, ,toenablesecureandeffectiveoperation,aut horizedoperatorsandrelatedcommercialinst itutionsjointlyprovidee-CNYcirculationse rvicesandretailmanagement,includinginnov ationonpaymentproductdesign,systemdevelo pment,scenarioexpansion,marketing, , advantageinresources,talents, ,sincethepublicisusedtoaccessingfinancia lservicesviacommercialbanks, ,unifiedcognitionandanti-counterfeiting, thePBOC makestherules, ,authenticatee-CNY, digitaldivide ,wallets,wallets,wallets, , ,wallets,wallets,wallets, ,onwhichclassificationoftransactionandba lancelimitsareplacedaccordingtothestreng thofcustomerpersonalinformationidentific ation; ,wallets,wallets,wallets, ,softwaredevelopmentkit(SDK),andapplicat ionprogramminginterface(API).

8 ,mobilephones,wearableobjects, ,sub-wallets,sub-wallets,sub-wallets, ,paymentconditions,personalprivacyprotec tionandotherfunctionsthroughsub-wallets; ,build,build,build,own,own,own,own, ,thePBOC makestherules, sfiatcurrency, ,includingcustomerduediligence,keepingcu stomers identitydataandrecordsoftransactions, ,authorizedoperatorsandothercommercialin stitutionsshouldprotectbusinesssecrets,i ndividualprivacyandpersonalinformationin linewithlaws,andshouldnotdivulgecustomer s ,asthecompetentadministrativeauthorityfo rAML, rightsrightsrightsrightsandandandandinte restsinterestsinterestsinterestsThedivis ionofresponsibilitiesforandthejobofprote ctingconsumers , , , , , ,11formingahybridtechnicalframeworkfeatu ringtheco-existenceofdualstates,namely,s teadystateandagilestate, sBankofChina, sBankofChina(RevisedDraftforComments)fur therclarifiesthat RMBincludesbothphysicalanddigitalforms.

9 However, , ,makeclearregulatoryrequirementsforautho rizedoperators,implementlawsandrulesonAM L/CFT,strengthentheprotectionofuser spersonalinformation,andcreateasafe, , , ,narrowbanking,andcreditsqueeze, ,institutionalinvestorsmightmovefromlow- riskassetssuchasshort-termgovernmentsecu ritiestoCBDC, ,indesigningCBDC, ,somealsoarguethatifCBDC bearsnointerestatall,theriskofCBDC competingwithlow-riskassetssuchascommerc ialbankdepositswillbelower, ,asthesafestasset, , ,whensystemicrisksemerge, , , ,fundswillbewithdrawnfromalldomesticasse ts,includingCBDC, ,thePBOC hasbeenpayingcloseattentiontotheimplicat ionsofretailCBDC formonetarysystem,monetarypolicy,financi almarkets,andfinancialstability, ,technologicalandpolicydesignstominimize theimpactofe-CNYsystemonexistingmonetary system,financialsystem, , , ,easethecrowding-outofbankdeposits,andpr eventarbitrageaswellasprocyclicaleffects understressfulconditions, ,thePBOC hassetupaframeworkofbigdataanalysis,risk monitoringandearlywarningfore-CNYtoenhan cetheforesightedness, , , ,updateandimprovetherelevanttheoriesandt echnologiesondigitalfiatcurrency, ,thePBOC willbuildupontestresultsandfurtherimprov etechnological, ,thePBOC establishedthedigitalfiatcurrencyresearc hgroup, ,keytechnologies, , ,thePBOC builttheconceptprototypeofChina sfirst-generationdigitalfiatcurrency,est ablishedtheDigitalCurrencyInstitute(DCI)

10 ,andproposedthetop-leveldesignsandfundam entalfeaturesofe-CNY,includingthetwo-tie roperationalsystem,substituteforM0,loose lycoupledwithbankaccounts, ,thePBOC startedthee-CNYR& , ,thePBOC andparticipatinginstitutionsdevelopedand improvede-CNYappsthroughthreephases, ,developmentandtesting,internalverificat ion, ,whichareexchangeandcirculationmanagemen t, ,basedonthee-CNYR&Dframework,thePBOC hasbuiltarelativelycompletestandardsyste m,coveringgeneralrequirements,businessop eration,interoperability,wallet, ,secure,managed,innovativeandpractical,t hePBOC haslaunchede-CNYpilotsinShenzhen,Suzhou, Xiong an, ,thestabilityofsystems,theusabilityoffun ctions,theconvenienceofprocesses, ,Shanghai,Hainan,Changsha,Xi an, ,coordinatedregionaldevelopmentstrategie s, ,thePearlRiverDelta,theBeijing-Tianjin-H ebeiregion,andChina scentral,western, ,2021, ,coveringutilitypayment,cateringservice, transportation,shopping, , , , , , ,moreexpandable, , digitaldivide.