The chinese blockchain awakening

Despite a decade of existence and a relative adoption from the mainstream market with more and more institutional investors entering the crypto market, most developed countries appeared, until recently, to be still lagging behind by only trying minor academical studies and experiments on the subject through their central banks.

However, all this was before the recent news coming from the chinese authorities announcing the existence of a new state backed cryptocurrency called DCEP ( Digital Currency / Electronic Payments ) ready to be used and set to be distributed among the chinese population in the coming months. Even though somewhat predicatble, knowing the different signals given during the past years by the chinese financial regulators and Xi Jinping himself, this news is still a game changer on the international monetary scene with a potential to really revolutionize the concept of money globally if this experiment turns out to be successfull. 

In this respect, it appears interesting as potential investors in the Chinese market to deep further into the specifications of this new cryptocurrency, given the current information leaked by the PBOC officials and get a broader understanding of its nature to analyze its potential impact on the internal and international markets once it will be publicly released. 

A new digitalized Yuan

In line with its previous banned of cryptocurrencies such as Bitcoin ( BTC ) or Ethereum ( ETH ) and its tight regulation on cash flows, the chinese government didn't create a decentralized ledger-based cryptocurrency allowing anonymous exchange of values among its users but a centralized ledger control by the government through the PBOC. Moreover, as shows the more than 50 patents registered by the chinese authorities in relation to the DCEP, the plan is for the government to distribute the currency through traditional banks in order to create a fully traceable digitalized equivalent of the Yuan, pegged to its value and fully integrated to the commercial system. So, it is pretty interesting to see that instead of adapting to this new decentralized ideology, the chinese government took the technologic side of this new domain and flip around its initial purpose in order to create a new token allowing faster remittance services, lower fees for customers and also a total control of the state over its citizen due to the transparency of the ledger technology and the traceability of each transactions. 

On it's design, we don't have for now a lot of information due to the absence of any DCEP whitepaper but we can say from the different leaks coming from the PBOC officials that it should be similar to Libra for the core infrastructure but with much better specs. The latest rumours, announcing a capacity of approximately 300,000 transactions per second when Libra is only able to sustain around 1000 transactions per second.  However, this performance even though impressive at first sight, is not really mind blowing considering that DCEP is not a pure blockchain architecture and therefore doesn't have to wait for groups of transactions to settle in a block. Indeed, given that this new digital currency is centrally managed and remains a liability of the banks, it leaves unchanged the debtor/creditor relationship and as such erase the problematic of the byzantine generals problem. 

Also, and it is an important feature to mention, the limit supply of DCEP will not be controled by an algorithm as in the case of BTC but directly piloted by the PBOC in order for the chinese authorities to keep a tight grip on it and remain in control of its currency sovereignty. 

The next strategic move from China against the US dollar 

As reminded previously , China employs strict currency regulations that are designed to prevent large amounts of currency moving out of the country when, in the meantime, cryptocurrencies such as BTC or ETH are allowing people to skirt those regulations and circumvent the PBOC and mainstream financial institutions. That is why, China has so resolutely sought to block crypto in the country through legislations that banned ICO and exchanges from trading from servers in China and even forbidden any exchange to create any pairing with the Yuan. 

Nonetheless, cryptocurrencies are quite popular in Asia and especially in China where people are already quite used to digital payments through mobile apps such as WeChat Pay or Alipay it. In this sense, it would appear counterproductive for the chinese government to go against the march of progress particularly when this progress is offering on a silver platter the banking information of each users which was the last bit of information they were missing in their digital enforcing of the chinese population already well in place through the social credit system. 

Also, part of the backdrop of these moves is clearly the trade war and China's desire to try to decouple from the US dollar denominated financial system. Indeed, as China expands trade globally through its Belt and Road initiative, the DCEP has clearly the potential to carve out significant autonomy for the chinese economy and to lessen its exposure to the US economy by creating a parallel monetary ecosystem faster, cheaper and clearer than SWIFT based on DCEP and challenging de facto the supremacy of the dollar as the global currency in this new digitalized realm. 

To conclude, given the current situation in China with the spreading of the COVID-19, the starting of this project will surely be delayed to the end of this year or even to 2021. However, this project seems to be pretty well thought out and will surely, once put in motion, have a profound effect on the global economy if the chinese government successfully pull it off and create a parallel network to SWIFT for international remittance services that is faster, cheaper and offer more transparency to every participants.