People’s Bank Of China Draft Law Provides A Legal Basis For Digital Currency Electronic Payments (DC/EP) And Bans All Stablecoins Backed By Renminbi Reserves – Forbes


DC/EP is the Central Bank Digital Currency (CBDC) about to be issued by the People’s Bank of China (PBoC). The pilot has made “positive progress”.

PBoC’s deputy governor Fan Yi Fei said that during the DC/EP pilot 3.13 million transactions were processed, totaling 1.1 billion yuan (about $160 million dollars). Users were reportedly underwhelmed by the user interface in the DC/EP wallet. This is to be expected as a central bank often does not have expertise in user facing apps, even though the digital wallets were reportedly designed in association with commercial banks; as the Chinese CBDC uses a two tier system for distribution.

Chinese users are long used to near field communications (NFC) based one tap payments. Alipay and Wechatpay dominate the country’s payment landscape with more than $60 Trillion a year flowing through those rails.

The pilot will continue at the Winter Olympics in 2022. This means that DC/EP may not launch for the next two years.

The legal ground is being prepared with a revised draft of the “People’s Bank of China Law” thrown open for public consultation starting 7 pm (Chinese time) on Friday October 23 on the PBoC website. Comments can be sent via email, fax or snail mail. The last day for comments is November 23.

Article 19 (Renminbi Unit) “The unit of Renminbi is yuan, and the unit of Renminbi currency is jiao and cent. RMB includes the physical form and the digital form.” providing a legal basis for the issuance of digital currency. This is the first such law that establishes DC/EP as legal tender, readying it for wider release.

Article 22 (Tokens) “No unit or individual may produce or sell tokens, coupons and digital tokens to replace RMB in circulation in the market.At the very least, this would ban any stable coin directly pegged to the RMB, as RMB would have to be removed from circulation into a reserve to issue such a stable coin. This article, definitely removes RMB as a peg for Libra. Only legal scholars able to read Chinese in the original document can opine properly. But as is common with legalese, there could be different interpretations of this law. The broadest interpretation would ban all crypto-currency tokens in China. This is a big deal and would adversely affect the prices of all crypto-currencies.

Any violation of Article 22 shall result in the confiscation of all profits, the destruction of all tokens and the imposition of a fine of less than five times the illegal amount. If the circumstance is serious, it shall be punished in accordance with the second paragraph of Article 61, which is criminal prosecution and possible jail time.

The Chinese government is playing a long game; they are definitely taking back the ground from the Chinese private money operators who have rapidly eaten the payment stack with integrated platforms for ecommerce and payments. The legal basis for DC/EP and the banning of a challenger coin which would threaten the RMB circulation are more building blocks. The work on DC/EP started in 2014. It is also seen as a strategic bid for global influence through the means of the digital silk road.

An integrated Blockchain-based Service Network (BSN), based on Hyperledger Fabric, is a cryptographically secure distributed repository poised to be the ultimate infrastructure of infrastructures. BSN will underpin the vertical integration of cloud, AI, big data and will be knit together by 5G. The change for the Chinese will start at home since the most massive blockchain testnet is live. DC/EP will ultimately ride on this pervasive substrate. There are plans to internationalize BSN and Chinese business partners may have to adopt DC/EP even abroad.



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