What is DCEP, China's digital currency?

DCEP is the world's largest central bank digital currency project or CBDC, and is part of China's plans to expand its economic, commercial and political influence around the world. Learn about the details of this pharaonic digital currency project, the advantages and dangers it represents.

What is the DCEP?

When we talk about DCEP we are talking about a CBDC, a national digital currency for China, whose full name is Digital Currency Electronic Payment or DCEP.

This is China's economic transformation project that seeks to create a new digital currency for its nation. A currency built on blockchain technology and its cryptographic foundations. In addition, said currency will be handled and issued by the state bank People's Bank of China (PboC).

The objective of DCEP is to replace the issuance of the yuan by this currency at the national level and have an international scope. This in the hope that it will become a global currency like the US dollar. All this supported by the digital nature of the currency and the blockchain. Two points that guarantee functionalities that fiat money and current digital money cannot achieve. This seeks to be at the height of its enormous economic expansion and to meet the needs that are emerging in the future.

Origin of the DCEP

The start of the development of DCEP can be traced back to the year 2014. It was at that time, in which the PboC proposed the idea of creating a digital currency. The then director of the bank, Zhou Xiaochuan, promoted the idea and established the world's first official institution for the research and development of legal digital currency: the Institute of Digital Currency of the Central Bank.

The objective of this research group was to improve the Chinese yuan system with blockchain technology. This, while China was already beginning to apply harsh sanctions against Bitcoin and free cryptocurrencies. Sanctions that, in fact, remain active today in that nation.

China embraced blockchain technology, but trying to maintain the control that cryptocurrencies take away from it. As we explained in the article on CBDC, Bitcoin and a CBDC are radically different things: while Bitcoin gives freedom to the citizen, a CBDC enslaves.

However, despite the establishment of this research and development group, progress in this regard was limited. It was not until 2017, with the official establishment of the group in Beijing, that China began to take rapid steps in the construction of its digital currency. Among the main responsibilities of this team was to focus on innovation and development of digital currency and financial technology. In addition to carrying out research and legal development of digital currency. All in accordance with the national strategic deployment and the central bank's general working agreement.

DCEP's development steps were further accelerated when in 2019 Facebook announced the launch of Libra, its private digital currency. This situation put China on alert, since in its opinion, Libra would endanger not only its economy but also its site of economic and financial innovation with a digital currency of global reach. To this was also added the fact that the Libra Association was a clear rejection of the digital economic system that China seeks to create with DCEP. All of this prompted the nation to accelerate its plans to launch DCEP.

That was how, finally after a few months of development, it was announced on June 22, 2020 China had already completed the DCEP backend infrastructure. Although, China is still in pilot testing as part of the research and development process. Finally, it has been announced that other Chinese cities, foreign companies and venues for the 2022 Winter Olympics hosted by China will participate in the DCEP tests. This makes it clear that China already has everything it needs in place to start its project.

Objectives of the DCEP

With DCEP, China seeks to create the first digital currency supported by one of the world's great economies. The objective is to link 1: 1 its current fiat mass that currently uses the Renminbi (RMB), for a digital currency that any citizen can use to pay for products and services in the nation. At the same time, the DCEP seeks to increase its circulation and convert this currency into a currency with a greater international scope. A strategy that seeks to turn the Chinese currency into the direct opponent of the dollar.

Although saying it sounds easier than making it a reality. One of the great problems of China in its plan is the enormous control that the State exercises over its economy, the constant devaluation of the currency, the little transparency and the lack of investment guarantees in the nation, whose regulators always seek to have a significant participation in companies that are established within the territory. In fact, the situation is beginning to blur rapidly at a time when China begins to exert greater pressure on economic poles such as Hong Kong, and relations with Taiwan and Japan begin to strain.

Along with this, we have that China has not been particularly open with companies from the crypto world. On the one hand, recently talking about Bitcoin or naming it was a risk that few dared to take, and today, although the risk is lower, few are those who dare to speak freely about Bitcoin and cryptocurrencies, or about how China's digital currency and CBDCs are an absolute contradiction to the philosophy with which blockchain is born.

However, the current global outlook suggests that stablecoins and the CBDCs will continue to grow and take on important economic spaces around the world. And in that sense, China does not want to be far from the game of geopolitical, geoeconomic, geo-commercial and global influences. In that sense, China's commitment to DCEP remains clear: "DCEP is a CBDC and we must make our nation and the world adopt it." Especially when it is known that only 1,6% of global international reserves are protected in yuan, leaving China far behind in international currency trade.

If these goals are achieved, the DCEP will occupy an important place within the status quo of international currencies, which will undoubtedly contribute to Chinese trade. A risky economic and technological bet that could begin to pay off by 2022. Especially considering the huge group of users that DCEP could have, which is estimated at more than 1,6 billion users. And the reason is that systems like Apple Pay China, AliPay, WeChat, and other digital payment systems will be closely tied to this digital currency.

Technology behind the DCEP How does the Chinese digital currency work?

The creation of the DCEP is closely linked to blockchain technology, in fact, its operation as such is possible thanks to this technology. From the data that is known, the Central Bank of the Chinese People (PboC) has under its control the main nodes of the network, while a series of allied banks and private companies will be able to operate complementary nodes to support the power of the network.

Information about the consensus protocol, mining algorithm, block generation, and cryptography used are still a state secret. Nobody is aware of these details and doubtfully they will be known in the near future knowing how jealous China is regarding its national technologies.

What we do know and have made public is that DCEP will be a centralized digital currency whose control will be in the hands of the PboC. In addition, the coin will have a distribution system divided into two stages. Something similar to all CBDCs.

This system is designed so that the PboC can maintain control, but at the same time, large national companies and banks can play an important role in its operation. A certain level of distribution of tasks and power, which seeks to keep the system running smoothly, especially in terms of scalability, since the system plans to continuously serve at least 1,6 billion users globally.

Among the companies and banks that are behind this operation are giant such as AliPay, WeChat, Union Pay, Huawei, Tencent, Ant Financial, Bank of China, Agricultural Bank of China, Construction Bank of China, the Industrial and Commercial Bank of China and others who will surely join this giant.

Another important point about the technology and operation of DCEP is given by its level of privacy and anonymity, two characteristics that cash has today. Well in this sense, the PboC has clarified that DCEP will have controlled privacy and anonymity, making it clear that the authorities will be able to know everything about the economic movements of individuals if they wish, but that the public will not have access to these functions. .

In addition to this, the PboC can have live access to each and every one of the DCEP wallets that have been created, whether they are in China or anywhere in the world. In short, as in the rest of CBDC, you will never own your money and they can take your money from you if a central entity deems it convenient.

Legality in China and the rest of the World

At this point you will have already seen that DCEP may be a blockchain-powered digital currency. However, its principles are light years away from the spirit of currencies like Bitcoin. To that you can add that the use of DCEP both in China and in the rest of the world is tied to Chinese law. This means that Chinese law will take precedence over any other local or international law for cases of control and access to your financial history and control of wallets.

To put it more simply, let's take the words of Huang Qifan, president of the China International Economic Exchange Center, who said that they have been working on DCEP for five to six years and is fully confident that it can be introduced as the financial system. from the country. Additionally, Qifan commented the following in the China Finance Forum:

DCEP can achieve real-time collection of data related to the creation and use of the currency, providing useful information for the provision of money and the application of monetary policies.

In short, European laws such as the GPDR or other laws that protect bank secrecy, economic and financial privacy simply do not exist for the DCEP. In China, this will have a well-crafted legal framework that will serve to control this huge global financial and economic intelligence machine. But in the rest of the world, it will surely not be allowed because of the clear danger it represents.

China and the need for a digital currency for its nation

China's need for the launch of the DCEP is drawn from its need to consolidate its economic presence and global influence. Converting DCEP into a highly liquid global currency seeks to boost its use as a reserve currency. In addition, to project their companies as financial giants for the provision of services at a global level. All these actions seek to dethrone the dollar as the global reference currency. And they even put the euro as the common currency of Europe at risk.

The reason? DCEP could offer better mechanisms for cross-border payments at a lower cost. In addition to providing greater "security" and above all greater speed, characteristics that exceed the current international payment system. Hence, systems such as SWIFT and SEPA actively seek to develop cheaper and faster payment systems than their current options. In fact, this is work that is already beginning to bring its own results.

However, China has a tough opponent, as SWIFT is the world's most widely used bank transfer mechanism. The SWIFT network, which began operations in 1973, enables financial institutions around the world to send and receive financial transactions in a secure, standardized and reliable way, although not as fast as current times demand.

And while China has the CIPS (China International Payment System) for banks, the creation of the DCEP will put this system aside for one that is faster, more easily adaptable and has a global reach. Quite simply, DCEP is a better development option and hence China is betting everything on this development today. Moreover, in the midst of a head-on confrontation between China and the United States that has resulted in several events of trade war in recent years.

Given these events, China's need for a digital currency like DCEP is evident. It is not just a currency for your nation, but a vehicle of economic domination. One that he urgently needs to be able to continue with his plans to establish himself as the world's first superpower by dethroning the United States. Hence, many media, especially Chinese media, see the DCEP as the "third wave" targeting the United States.

Scope and consequences of the DCEP for China

The impact of transforming China into a cashless country will be positive on the one hand. Especially since today, almost 50% of the Chinese population makes their daily economic expenses using digital media.

In fact, more than 80% of smartphone users use their mobile devices to pay for point-of-sale transactions on a regular basis. This means that China has the highest mobile payment adoption rate in the world. It has even surpassed countries like South Korea and Japan, who held this position.

In this sense, the impact of the DCEP in China will be rather little. Society is used to digital payments and the wallets that they will use to manage DCEP will be natively integrated with the new currency making the transaction very simple. But on the contrary, there is everything that we have mentioned before. Everything you do with the currency will be monitored and subject to political decisions. Instead, the use of Bitcoin, or stablecoin without fiat collateral like DAI, are better freedom solutions for everyone.

Conclusions

At this point there is no doubt that DCEP is just a digital currency of a country that seeks domination by any possible means. Not only China wants this, all the countries in the world have central banks that want to continue to hold the population under control through money they control.

But not only central banks, but also companies, as in the case of Facebook Pound. This is a centralized currency backed by central bank fiat money that adds an extra layer, the Facebook corporation. And all it seeks is to create a false sense of innovation and technology by camouflaging new digital shackles. Shackles that seek to subdue us and serve as generators of information, in digital hives. Hives where we also control everything we do, mentally reprogram ourselves with advertising that modifies our way of thinking. And above all, in a digital world that seeks to direct in a direction contrary to the benefit of people, always with control of money at the epicenter.

There is no doubt that digital currencies are necessary in the current context of the world. But making these tools of domination that we cannot escape is simply a new form of neo-slavery. A neo-slavery that currencies like Bitcoin help us to break by giving us absolute power over our money. A power that, as a community, we seek to maintain to protect our freedom in the world.

DCEP is undoubtedly a huge project, with very high objectives, some of which we will surely see fulfilled in a very short time. But it remains to be seen, what degree of acceptance it will have in the world. Especially when options as powerful as Bitcoin have risen and gone long before. Which ultimately tells us that in a very short time we will see economic giants face off against Bitcoin and other cryptocurrencies in a fight to win the place of honor of being the world's reserve currency of value.

In that sense, from Bit2Me Academy our bet is Bitcoin, the cryptocurrency that helps to achieve freedom and economic independence for all of us. And with economic freedom comes everything else.

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