The People’s Bank of China (PBoC) announced last week that the top-level design of its digital currency is finally complete. The digital currency’s next step is to “follow the principles of stability, security, and control,” said Mu Changchun, head of the digital currency research institute at the PBoC.
The news appears to be the latest update from China regarding the development of its digital yuan, which has been in the works since announced in 2014. While its launch date is still unknown, the much-anticipated digital currency will first be distributed as pilots to commercial banks in Shenzhen and Suzhou.
According to the PBoC, the initiative has partnered with seven state-owned commercial banks and telecoms, including the Bank of China, China Construction Bank, and China Unicom to roll out initial testing. The trial will consist of two phases, and if the pilots are successful a full-fledged launch is expected.
The new currency will come equipped with features like manageable anonymity and encryption, allowing the CBDC to function anonymously. The PBoC also suggested that the digital currency would have the potential to work with smart contracts, but stated that it would not run on contracts that provide functionality beyond “basic monetary requirements.”
Yao Qian, former head of PBoC’s Digital Currency Research Institute, described in a 2018 paper that the CBDC would be built on the “one coin, two repositories, and three centers” approach. Two repositories refer to the central bank’s issuance database and the commercial bank’s database, as well as the digital currency wallets used by individuals and organizations.
Three centers refer to plans for authentication, registration, and big data analysis centers, which will be established for the management of the currency. The planned authentication center would allow for centralized management of financial institutions and end-user identity, which will be a fundamental component of the CBDC’s security and anonymity design.
However, in the early stages of the system the PBoC may only authenticate and manage the identity of financial institutions. According to authorities, in the future the bank may provide authentication support for end-users which would be built based on existing technologies, such as IBC (identification-based cryptography).