During the process of testing the new digital currency, an increasing number of use cases have surfaced, which has prompted the People’s Bank of China (PBOC), which is the nation’s central bank, to make plans to implement further smart contracts for the digital yuan. In a presentation that was given on Friday, Mu Changchun, the director-general of the digital currency institute at the PBOC, stated that smart contracts using the digital yuan, also known as e-CNY, are being used in sectors such as government subsidies, retail marketing, and the management of pre-paid funds.
This move is in accordance with the whitepaper that the institute published the previous year. In that document, it was said that the e-CNY will achieve programmability by deploying smart contracts that don’t damage its monetary capabilities. The term “smart contract” refers to a type of contract that is traceable, self-performing, and enables complicated use cases such as conditional payments, guaranteed payments, and more. Smart contracts are extensively utilized in blockchain and decentralized settings.
Enhancing Economic Activities With e-CNY Smart Contracts
The PBOC stated in a statement from the previous year that e-CNY smart contracts might enable business model innovation. According to Mu, the implementation of e-CNY smart contracts has the potential to significantly cut expenses associated with economic activities and has the flexibility to be used in a variety of contexts. According to reports from local media in August, the Bank of China, one of the main state-owned commercial banks in the country, began supporting digital Chinese Yuan transactions via smart contracts.
The smart contracts were implemented for after-school education programs in Chengdu, the capital city of the Sichuan province in southwestern China, last month. Parents will be able to pre-pay for their children’s classes using the e-CNY as part of the project, and if their children miss any of their scheduled classes, the tuition will be automatically repaid using the smart contract settings of the program.
That way, if an educational institution ever has its bank accounts frozen because of legal issues, it won’t have to worry about problems with refunds. According to Mu, the fact that smart contracts have guaranteed enforcement necessitates the presence of solid management of smart contract templates and systems. If this is not the case, it may pose a threat to the economy and the financial system.
Tech Giants Embracing Digital Yuan Payments
According to Mu, smart contracts, in this sense, are required to go through compliance assessments and testing before they are made into templates and models. In addition, the PBOC is working on establishing a platform to review and register smart contract models. In October 2020, the PBOC began conducting pilot tests of the e-CNY in Shenzhen. Since then, the PBOC has expanded the testing to at least 23 cities and regions around the country.
Additionally, Chinese tech giants are adopting digital Yuan payments. At the “618” shopping festival that took place in June, the online retail platform JD.com generated digital Yuan sales totaling 400 million yuan (about $60 million), which accounted for around 0.1% of the event’s overall sales. The use of the digital Yuan has also been expanded to cover a range of public transportation and municipal services, such as highway toll gates, taxation, and social insurance. This expansion includes the metro, buses, and trains.
