The Digital Currency Electronic Payment (DCEP) platform is a national digital currency that China built with blockchain and cryptographic technology. The currency is pegged 1:1 to the Chinese national currency – the renminbi (RMB). DCEP will be launched as a transportation allowance in May and distributed to all staff at state-owned enterprises and local government branches in Suzhou's Xiangcheng district. Qualified participants are required to install the designated e-wallet by the end of April. Employees' transportation allowance will be distributed in the form of DCEP. It is highly possible that during this trial, China's digital currency will only be used for transportation.
China's four largest state-owned banks will serve as pilot institutions for DCEP: China Construction Bank, the Agricultural Bank of China, the Bank of China and the Industrial and Commercial Bank of China. China's three largest telecommunications companies, China Mobile, China Telecom and China Unicom, are also involved.
According to a screenshot of Agricultural Bank of China (ABC)’s beta application, the DCEP wallet allows users to pay for transactions by scanning a QR code, and can also be used to send money, receive money and do P2P transfers by touching phones.
Difference between DCEP and China's main digital wallets
Moreover, Alipay and WeChat payments belong to the field of M1 (narrow currency) or M2 (broad money), while DCEP is considered M0 (cash in circulation). DCEP is the national digital currency while Alipay or WeChat Pay can only be used as its node or e-wallet. DCEP can be used across different Apps without any payment barriers. In terms of privacy protection and transaction security, DCEP is built with cryptographic technology and only discloses transaction information to the People’s Bank of China (PBoC) by now in the pilot program due to its two-tier and three-center system. The circulation of DCEP follows the traditional 2-tier system of the central bank and commercial banks. The PBoC issues DCEP to commercial banks in a wholesale approach. Then commercial banks distribute DCEP to the public for retail use. The registration center records all DCEPs, corresponding users and all DCEP transactions. The certification center plays a vital role in the “controlled anonymity” of DCEP, which means that DCEP only discloses transaction information to the PBoC.
Difference between DCEP and Libra
Libra, as an American digital currency, is initiated by Facebook and administrated by the Libra Association. Its purchasing power is uncertain. In contrast, China's central bank issues DCEP. No domestic party in China can refuse to accept DCEP. Additionally, Libra is backed by a basket of currencies and U.S. Treasury securities. The currencies backing Libra include the U.S. dollar, UK pound, Euro, Swiss franc and Japanese yen. For this reason, Libra is influenced by the risk of currency fluctuations, while DCEP, as a digital form of renminbi, is affected by the same currency risk with renminbi. Since China maintains a controlled exchange rate, there in a minimal risk of currency fluctuations affecting DCEP. Rather, a matter of greater concern is the inflation rate.
The DCEP is traceable, encrypted and under full regulatory supervision. For the central bank, these characteristics can improve financial legality, identification and risk management for institutions or individuals. Additionally, the DCEP can help reduce the occurrence of financial fraud, embezzlement of funds, and other illegal activities because these types of financial crime can be electronically tracked through its systems. The DCEP also can boost RMB internationalization, mainly through simplifying cross-border payments and transactions. Moreover, the DCEP can improve the quality of financial services in underdeveloped and remote areas.
Alipay is likely to be involved in the second issuance of DCEP, although its participation has yet to be confirmed. On Feb 21st, Alipay applied for a patent related to the whole stack of digital currency payment, the execution method and physical electronic equipment for digital currency transactions. By Mar 17th, Alipay has disclosed five patents focusing on DCEP.