A recently published speech by Zhou Xiaochuan, who spearheaded China’s foray into digital currencies when he was chairman of the People’s Bank of China (PBOC), has shaken some basic assumptions about the digital yuan, or e-CNY.

China has been working on a digital currency for years, much anticipated by fans of virtual payments and opponents of leather wallets. It’s likely to be the first major economy to adopt a digital currency. Details were scarce until April 2020, when a series of four pilot programs gave us our first look at e-CNY payments. 

Just in time for the annual meeting of China’s legislature, its most famous monetary policy authority has released the text of a talk on the central bank’s digital currency plans. Zhou said that these plans are a lot broader than the launch of a new form of currency.

The text has a messy pedigree: We first saw it when finance and business newspaper Caixin published an abridgement in English on Feb. 22. A longer Chinese version was published on Caixin on Feb. 16. These articles were based on a speech Zhou gave at Peking University back in November 2020, which according to him used slides prepared for an even earlier conference, the Budapest Eurasia Forum hosted by Hungary’s central bank.

China Voices

In TechNode’s members-only translation column, we bring you selections from discussions about tech on the Chinese internet. TechNode has not independently verified the claims made below.

We recommend reading the whole Chinese Caixin text, even if it means using Google Translate—it’s a lot easier to follow than the translation. We’re relying on Caixin’s English where available, and our own translation where not.

DCEP vs. digital yuan

First off, Zhou’s first point: “DCEP”—short for “digital currency/electronic payments” is not the same as the digital RMB. Many writers—us very much included—have understood them to be near identical.

According to Zhou, this is a misunderstanding. The currency is called the digital yuan, or e-CNY. DCEP is the central bank’s broader research project into digital currencies and electronic payments. 

I’d like to make it clear that DCEP is a two-tier research and development (R&D) and pilot program, rather than a payment product. In other words, the DCEP program may involve several payment products that can be trialed and rolled out.

Our translation

The central bank’s job is to provide underlying infrastructure and oversight, not build payments products, he wrote. 

The bank shouldn’t pick one technology roadmap at all, Zhou wrote.

It’s best if the central bank doesn’t pre-determine, or endorse, a certain technological route, because technology is constantly evolving, and it is not easy to judge which technology is better or worse when the technology is advancing very fast.

Our trans.

Two tiers

Zhou’s next key theme is the “two-tier” approach to managing DCEP.

On the first tier sits the PBOC. The central bank’s job, Zhou said, is providing infrastructure and oversight.

The second tier is where you’ll find digital currency and payments. It comprises everyone else; commercial banks, telecom operators, and third-party payment platforms like Alipay and WeChat Pay. 

According to Zhou, tier-two institutions will be tasked with developing payments products, which includes e-CNY.  This means, Zhou wrote, that the digital yuan isn’t a mainstream central bank digital currency (CBDC).

Zhou likened the two-tier approach to Hong Kong’s semi-private banknotes. Most money in Hong Kong is printed by private banks, backed by deposits of American dollars with the city’s equivalent of a central bank.

To some extent, this design draws lessons from Hong Kong’s three note-issuing banks. The three banks need to give $1 [ed: US dollar] to the Hong Kong Monetary Authority (HKMA), the city’s de facto central bank, as a reserve for every HK$7.80 they issue. The HKMA then hand outs certificates of indebtedness to the issuing banks. On the banks’ balance sheets, the notes they issue are entered as liabilities. And for the HKMA, the certificates of indebtedness are its liabilities. In this sense, DCEP is different from the typical CBDC, which is owned and indebted by a central bank.

Caixin translation

On the Hong Kong model, banks would have to deposit one yuan RMB at the central bank to issue a digital RMB. But Zhou doesn’t seem to say that DCEP will adopt this exact approach.

Secondly, the PBOC can ensure the stability of the digital yuan’s value through multiple approaches, including requiring banks to set aside money as reserves and then issuing them certificates of indebtedness or letters of comfort. Therefore, the composition of the two-tier system of DCEP can be different.

Caixin trans.

“I believe that he is suggesting that DCEP can be either in CBDC form (direct claims on PBOC) or in narrow bank form. The latter is a claim on a bank which is based on segregated claims on PBOC. He is a little unclear on that, going one way in part of the essay and the other way in a different part. ” Darrell Duffie, Professor of Finance at the Stanford Graduate School of Business, told TechNode.

But at one point, Zhou seems to have it both ways on whether the PBOC should get involved in designing the system:

Theoretically speaking, under the two-tier system, the central bank’s own R&D focus may not be on the digital currency product itself (of course, it has the foundation, so there are also many people inside who are enthusiastic to do research in this area, which is not unreasonable), the central bank should focus more on building reliable settlement and clearing infrastructure…

Our trans.

So what? 

Zhou wrote that China is not really working on a CBDC—at least, not a “mainstream” one.

He advised the reader to focus on a long-term R&D program, rather than current digital yuan experiments, which he seems to see as one model among many.

Pilots for the e-CNY launched in 2020 in four cities: Chengdu, Shenzhen, Suzhou, and Xiong’an. Six public trials have taken place in the four cities in the form of lotteries, starting in Shenzhen in October 2020. It appears that these have all tested the same system—all use the same app.

There are some differences between banks visible in this app. The e-CNY displayed on the pilot digital wallets currently tested in Suzhou comes in different colors, depending on the bank card connected to the account. Users were also able to spend the money in different places depending on which bank card they connected, suggesting that the major Chinese banks may in fact be implementing the system at least somewhat independently.

READ MORE: UPDATED: We got some digital yuan!

During the latest Chengdu lottery, winners could also use the JD.com app as an e-wallet.

Other products built by second-tier institutions under DCEP could include “smart contracts, like programmed payments, delayed payments, contingent payments, and so on. This could also mean API service provision, super Apps for cross applications, and so on,” Duffie said. 

Zhou also commented on a few other key issues:

No disintermediation 

The PBOC should be careful to avoid cutting banks out of the equation, Zhou wrote—something known as “disintermediation.” Many early digital currencies have encouraged users to do without bank accounts, often advertising it as a feature.

Chinese DCEP architects want to keep traditional financial institutions in the loop. “Commercial banks serve a critical function in implementing monetary policy. So, in considering digital currencies strategies, central banks specifically focus on implementations that would not disintermediate these banks,” Michael Sung, founding co-director of the Fudan Fanhai Fintech Research Center and chairman of CarbonBlue Innovations.  

All about Ant?

Some observers have seen DCEP as a rebuke to Alipay and WeChat Pay, the privately-developed electronics payments platforms that dominate transactions in contemporary China. 

Zhou seems to say that DCEP will not replace Alipay and WeChat Pay, but it will bring more competitors. Zhou describeed the two companies behind China’s most popular payment solutions as fundamental to the project, including them in a list of eight major two tier institutions.

Tier-two institutions are already quite motivated to come up with payment solutions, to acquire more users, Zhou wrote. But they will shirk responsibility without oversight, he writes.

In the digital yuan system, the second tier institutions will “own” the digital yuan, and thus will be forced to have enough reserves to back it up, but will also be responsible for know-your-customer requirements and protecting privacy, Zhou said. 

For that matter, Zhou thinks that QR codes may be replaced: 

QR codes are not very high-tech, so some people say that they might disappear sooner or later, and it may not be so long.

Our trans.

Zhou lists near-field communication and subway-style prepaid cards as other possible ways  to make payments happen. Both of these QR code alternatives are being tested in digital yuan trials. 


The former central banker said blockchain is not ready to be part of DCEP, but he didn’t shut the door completely. 

In the field of payment, due to the huge transaction throughput, distributed ledger technology is not yet able to play a core role in the retail payment system, but it can wait for the development of technology.

Our trans.

Zhou highlighted the difficulty of unwinding transactions made in error as a downside to blockchain.

RMB internationalization

Several observers have taken DCEP as a challenge to  the US dollar’s global status. But Zhou played down the international side of digital currency.

Just this week, the PBOC joined a project called “m-CBDC bridge,” to test cross-border transactions using digital currencies with Thailand, the United Arab Emirates, and Hong Kong. 

But Zhou argues that new technology won’t fundamentally change cross-border transactions. The real issues, he says, are financial obstacles like exchange rates.

The difficulties linked to cross-border payments don’t really involve technical systems, but risks related to currency exchange and management of capital inflow and outflow. For example, if Mexican migrants in the US want to transfer money back home using Libra, they have to exchange it for pesos if Libra is not widely accepted in Mexico. Therefore, it’s necessary to focus more on the retail application rather than on cross-border money transfer.

Caixin trans.

However, Zhou does see opportunities for digitalization to help with some retail transactions, naming e-commerce, remittances, and tourism, which will “fit with” RMB internationalization. 

He cautioned against getting a reputation for “dollarization,” referring to countries in which the dollar has partly or wholly replaced local currency.

China and other East Asian countries, can steadily advance cross-border payments using new payment solutions. This requires countries to build on the solid development of domestic retail payment systems, and then focus on solving current account payments such as cross-border travel, while respecting the needs of some countries to prevent dollarization. Of course, this process may be accompanied by the internationalization of the RMB, but this should not be forced. It is more important to avoid being accused of promoting “yuanization.”

Our trans.

Eliza was TechNode's blockchain and fintech reporter until July 2021, when she moved to CoinDesk to cover crypto in Asia. Get in touch with her via email or Twitter.