China central bank to release digital currency prototype in 2017
Back in August 2016, Fan Yifei, Vice President fo People’s Bank of China, has written an article elaborating the theoretical basis and framework selection of China’s fiat digital currency. He says that the legal framework of China’s legal digital currency tends to follow “central bank – commercial bank” dual model, that is: the central bank is responsible for digital currency issuance and verification monitoring. Commercial banks are responsible for providing digital currency circulation services and building application for the ecosystem. A Demo system is expected to be released after the Spring Festival of 2017 after two rounds of revision.
PBoC official has been actively engaged in the discussion of government-backed digitial currency since the first Central Bank’s Digital Currency Workshop held in Beijing on 20th January 2016. Sheng, Songcheng, Director of the Investigation and Statistics Department of PBoC, gave 6 reasons to justify the necessity for centralized digital currency.
PBoC is seeking six developers with a master’s degree or a doctorate in computer science, information security and cryptography to work on the design and development of digital currency-related software and hardware framework.
It is reported that the PBoC digital currency is issued by the central bank, encrypted and backed by national credit. With the backup of national credit, the PBoC digital currency is essentially the same with the paper banknote in circulation, only the latter will be gradually replaced by the former.
Below is the description of the PBoC digital currency:
The encrypted numeric string that represents a specific amount is verified by a specific cryptographic and consensus algorithm. It can be stored in a digital wallet for use in a mobile terminal, a PC terminal or a card base. Users can deposit it as cash in the bank account to access service like transaction, payment and earning interest as well.
As disclosed by Hu Youwen in December 2016, analyst from Anxin Securities, the issuance and withdrawal of PBoC’s digital currency will be in line with the existing “Central Bank-Commercial Bank” mode.
Regarding the operational framework, the central bank digital currency will stick to the current dual mode of “Central Bank-Commercial Bank”. Central bank will issue digital currency to the commercial bank business pool. Commercial banks will be commissioned by the central bank to provide digital fiat currency to public for deposit and withdrawal and other services. Together with the central bank, the commercial bank will maintain normal operation of issuance and circulation system.
In the dual mode, the transfer and storage of central bank digital currency will be conducted through the central bank issuance treasury, commercial bank treasury and user digital wallet. The overall operation framework has no significant difference with traditional currency, only the transfer and storage methods will be slightly different.
Other than the three links of central bank treasury, commercial bank treasury and user’s digital wallet, the system also incorporates 3 centers: Authentication, Registration and Bigdata Analysis.
As the basic component of the system security, the Authentication Center can centrally manage identity information of institutions and individuals. The Registration Center keeps a record of the central bank’s digital currency and the identity of corresponding user, completing the ownership registration and recording the issuance, circulation, audition and cancellation. Bigdata Analysis Center is to analyze and monitor a variety of trading activities.
Thus the framework could be summarized as
one currency, two treasuries and three centers
The digital currency may come as a relief since the banking industry in China is in desperate need to cut off their costs.