China’s digital currency project: What is DC/EP all about?

Authors: Jonas Gross, Alexander Bechtel

Central bank digital currencies (CBDC) are becoming reality. On 16 April 2020, the Chinese central bank has started the test phase of its CBDC, called Digital Currency / Electronic Payment (DC/EP). It is currently tested in four Chinese cities: Shenzhen, Suzhou, Chengdu, and Xiong’an. China might be the first industrial economy worldwide to introduce a CBDC. This article outlines the current status of the DC/EP project and its economic and social implications.

Mobile payments in China widespread

With 790 million users, more than 60.5 billion transactions, and a transaction volume of USD 41.5 trillion, China is a global pioneer in mobile payments. Studies in the cities of Shanghai, Beijing, and Hangzhou show that the market share of mobile payments is up to 60%, compared to 20% cash. According to the Deutsche Bundesbank, in Germany, cash accounts for almost 50% of the payment volume, while mobile payments are negligible. Given the widespread use of digital payments, it is not surprising that the Chinese central bank, the People’s Bank of China (PBoC), has been working on its own digital currency since 2014. As early as 2016, a research institute for the Development of Digital Currency/Electronic Payment (DC/EP) was founded. In April…