On 23 October 2020, the People’s Bank of China (PBOC) published a draft law that will legally recognize China’s central bank digital currency (CBDC), the digital renminbi or e-CNY. This marked the start of a public consultation about the proposed legislation, which also covers other matters.
This draft law comes after China’s State Council announced a reform program earlier this month. While the Program specifically targets the Shenzhen area, one of its multiple fintech initiatives included the creation of a platform by the Chinese CBDC Research Institute in Shenzhen. The draft law was written to help implement financial reform, build a modern central bank system, and strengthen systemic risk prevention methods.
Stiff penalties for scams
The relevant clause about the digital yuan states the CBDC includes both its physical and virtual forms. In an attempt to prevent virtual currency risks, it also says that no individual or unit is allowed to make and sell digital tokens or coupons that replace RMB in circulation. Those that do will face fiscal penalties and will have the illegal tokens and coupons destroyed. For digital tokens, any financial gain will be confiscated and those responsible will face a fine around five times the illegal amount produced and sold. If the amount is unknown, a fine of 100,000-500,000 yuan ($14,900-74,600) can be imposed instead. Numerous online scams try to claim they are providing the digital yuan.
This is the first time the PBOC’s CBDC has been given legal recognition.
China has slowly but surely endorsed CBDCs, garnering national and international attention. Last week, the Bank and the Shenzhen municipal government concluded a digital renminbi giveaway worth around $1.3 million. Those who received the 200 yuan (around $30 dollars) were able to spend their winnings at 3,000 participating retailers in the Luohu district. Another digital renminbi giveaway was previously performed in the same district for 5,000 medical and healthcare workers. The trial was conducted to thank the workers for their COVID-19 contributions, but also to encourage spending after the pandemic several impacted consumption.
However, the trials have not been entirely smooth-sailing. Two months ago, China Construction Bank enabled the open use of the CBDC trial in its app but ended up disabling the digital yuan functionality on the same day. This was most likely an oversight as users had to search for ‘digital currency’ in the app to access the functionality. Nonetheless, users were able to bind the wallet to their bank account and make transactions.