The modernization process of China’s payment system

On November 27, 2020, on the occasion of its fifth anniversary, the Digital Finance Research Center of Peking University held a series of seminars on “Digital Finance Innovation and the New Pattern of Economic Development”. Zhou Xiaochuan, President of the Chinese Finance Society and former President of the People’s Bank of China Attend and share in-depth insights on the frontier and core issues of digital finance.


Conference photo: Zhou Xiaochuan, Hyun Song Shin, Huang Yiping, Stephen G. Cecchetti, Leonardo Gambacorta, Xiong Wei, Wei Shangjin, He Dong, Shen Yan Conference photo: Zhou Xiaochuan, Hyun Song Shin, Huang Yiping, Stephen G. Cecchetti, Leonardo Gambacorta, Xiong Wei, Wei Shangjin, He Dong, Shen Yan
In the case of the official launch of the dual-cycle strategic deployment in China and the urgent need for innovation-driven development, the imbalance and inadequacy of the original financial system in supporting the real economy has become more prominent. Facing the transformation of the old and new economies, how can the original financial system better support the real economy and innovative economy? How to supervise and guide the emerging digital finance? How to deal with the new technology and new trend of digital currency?

Zhou Xiaochuan’s sharing mainly focused on the two major issues of DC/EP (Digital Currency Electronic Payment) and e-CNY.

He first briefly reviewed the modernization process of China’s payment system.

Before 2012, third-party payment, especially third-party payment using digital and network technologies, had developed, but there was a lack of management and coordination entities. The discussion asked the People’s Bank of China to manage it, so it began to issue third-party payment licenses, and the first license was issued to Alipay.

In 2014, the People’s Bank of China began to establish a digital currency project team. The project implementation plan did not have a clear direction, which included both blockchain technology and other possibilities.

In 2016, the People’s Bank of China established the Digital Currency Research Institute, borrowing the institutional establishment of the Banknote Printing Research Institute, which also shows that the design and research work of the next generation of banknotes has ceased since then.

In 2017, the People’s Bank of China began to develop digital RMB. At that time, I realized that we must not mix the digital RMB DC/EP that belongs to the payment system with digital asset transactions. Therefore, in 2017, the People’s Bank of China stopped ICO (Initial Coin Offering, named after IPO) and domestic transactions of Bitcoin.

In 2019, the People’s Bank of China announced the start of a pilot program and a closed test.

In 2020, we will start to promote the internal closed pilot test of the “four places and one scene” in Shenzhen, Suzhou, Xiong’an, Chengdu, and the future Winter Olympics scene. The population of the four pilot cities is 13.4 million in Shenzhen, 10.75 million in Suzhou, 1.05 million in Xiong’an, and 16.5 million in Chengdu. In terms of size, they are all larger than those of other European countries.

Zhou Xiaochuan said that from a conceptual point of view, DC/EP is a two-tier R&D and pilot project plan, not a payment product. Of course, there may be people who have different understandings, and this is fine, because it is normal to have different understandings of new things in technological innovation. The DC/EP project plan may include several payment products that can be tried and promoted. These products were finally named e-CNY, or digital RMB.

In the two-tier system of DC/EP, the People’s Bank of China is on the first layer, and on the second layer there are commercial banks, telecom operators, and Internet payment platforms. They can cooperate or unite, depending on their understanding of payment products and Understanding of the technical framework.

In addition, there are many concepts and scientific research organization content that need to be clarified, such as where should R&D and pilot projects be directed? With so many participants participating, how to divide the work? Especially after entering the pilot and promotion stages, what are the main responsibilities? If there is a risk in the design, how to control the risk? These are issues worthy of serious discussion.

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